Charitable Donations And Deductions
This is the time of year when many nonprofits make appeals. If your clients have a philanthropic mindset, you can suggest ways for them to do good and save on taxes.
Contributing individual stocks and stock funds with significant unrealized gains to a donor-advised fund (DAF) is the most tax-efficient and convenient move for most clients. Clients avoid realizing gains and can take the tax deduction when they contribute the stocks to donor-advised funds. They can tap the fund to make charitable contributions this year or in the future.
Let your clients know, too, that the same level of charitable donations will yield more tax savings this year than next because of inflation’s effect on 2023 federal deduction limits and tax brackets.
Inflation, Retirement Savings And Income
Inflation will allow clients to make larger qualified contributions to their 401(k)s, IRAs or other tax-advantaged accounts in 2023. Higher living costs, though, may restrict clients, especially younger ones, from taking advantage. Remind them of the long-term benefits of saving and guide them toward tax-smart investing, starting with asset location, for better after-tax returns and account growth.
Clients in their 50s and 60s may be afraid that their savings won’t last their lifetimes. You can help by returning to their financial plans and seeing if they are on target for producing the income they’ll need in retirement. Some may need to work longer or save more.
High-income clients seeking options for retirement income planning may be interested in learning more about investment-only variable annuities (IOVAs). These products resemble IRAs, but they are funded with after-tax contributions.
You may want to introduce clients who are retired and interested in guaranteed income to income annuities, which have lower fees and more flexible schedules than they did in the past.
The financial advisor’s life is perpetually one of finding opportunities and advising on the next-best steps to take, whatever situation their clients are in or the mayhem in the markets.
The declines in once high-flying tech stocks, among others, may have sobered up some investors. As 2022 comes to a close, your clients and prospects may be more amenable than in the past to advice to follow the tried-and-true philosophy of buying and holding a diversified portfolio of stocks and bonds or funds.
Paul R. Samuelson is the chief investment officer and co-founder of LifeYield.