Evans Wealth Management Blog

Articles written by Evans Wealth Management are designed to educate clients & potential clients on concepts important to their financial future.

A Tax Break for Those with Company Stock

If you work or have worked for a successful, publicly traded company, there is a relatively unknown tax break you should be aware. It deals with net unrealized appreciation (NUA) arising from company stock inside an employer retirement plan. Here are some important points to consider before taking advantage of this opportunity.

  • This tax break only applies to stock in the company in which you were employed, and it needs to reside inside the employer retirement plan (e.g., 401K plan). To reap the full benefit, it should have experienced significant appreciation in value. You must be at least 55 years of age to avoid the 10% penalty associated with withdrawing the funds.
  • One must withdraw their entire plan balance as a lump sum distribution within the course of a year. The NUA applicable shares are placed in a taxable account rather than an IRA. The cost basis of the shares is taxed at ordinary income tax rates in the year of the distribution. However, the appreciation will be taxed at long term capital gain tax rates at the time of sale.
  • The key to this strategy is for the shares to have significant appreciation. The more appreciation, the larger the tax benefit. For those with a large capital loss or capital loss carry-forward, timing the sale of the appreciated company stock with a capital loss from another investment would add further benefit to the strategy as the two could offset each other.

The details of this strategy involve complexity, but the tax saving benefits could be substantial. If you are considering the applicability of this strategy to your situation, feel free to reach out. I’d love to answer any questions and discuss how it might fit into your overall plan for funding your future.

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What to Expect From Social Security in 2020

The Secure Act has dominated recent headlines; however, the Social Security Administration has released the changes for 2020 and they are just as important for those nearing or in retirement. Below is a quick overview of what to expect for this year.

  • You are receiving a raise! Social Security checks are increasing by 1.6% this year. Sure there have been larger increases, but every extra dollar helps offset inflation.
  • Unfortunately, the increase will have a modest impact on your lifestyle due to the 6.7% increase in the Medicare Part B premium. At first glance, you might assume a hold-harmless situation exists. However, the larger Medicare increase is applied to a smaller amount than the social security increase; therefore, the hold-harmless situation isn’t likely to apply to many people.
  • The cost-of-living adjustment raised the earnings threshold to $18,240 for those filing prior to full retirement age and $48,600 for those applying the year of full retirement.
  • The new taxable wage base is $137,700, up from $132,900.
  • Finally, the maximum social security benefit for a person retiring in 2020 is $3,011, up from $2,861.

Hope you find the above helpful as you plan for retirement.

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The Year No One Expected

The books have closed on 2019 and it was one for the ages. When the dust settled, the S&P 500 closed the year up 31%. A great year by any measure. The economic recovery that began in July, 2009 finished its 10th year and is now the longest running economic expansion in US history.  Various factors driving the market included the following:

  • Entering 2019, investors were on edge as the Federal Reserve president had spent the entire fourth quarter preparing markets for up to three rate increases. Concern subsided when on January 4th, he completely reversed course and embarked on three Fed rate decreases. Currently, there is no reason to believe rates will increase in the near future.
  • Trade tensions dominated the headlines all year. By the end, China signaled a willingness to sign a Phase One deal. Considering the political polarization inside the US, it was encouraging to see any two groups work together on an agreement benefiting both parties.
  • US GDP growth remained above 2%, unemployment continued at record lows, job creation and wage growth progressed and consumers found reasons to spend. With everyone working, earning more and then spending some of their earnings, economic growth was the result.

2019 defied the expectations of experts and investors alike. It was a truly remarkable year. With that said, the manufacturing sector continued its decline and the overall pace of growth may not create the same level of opportunity enjoyed in recent years. Economic growth is slowing from the elevated levels of previous years, but the current pace feels sustainable.

All the best in the New Year!

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Can the US Economy Survive a Decline in Manufacturing Jobs?

In 1950, manufacturing jobs represented 37% of total private sector employment. Today, it represents 10%. Will the seeming demise of the manufacturing sector cause the US economy to stumble? Click the link below to view a short, but informative video on the subject.

https://www.youtube.com/watch?v=dML6W-wMgeI&t=3s

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The 2020 Social Security COLA Announcement

Last week, the Social Security Administration (SSA) announced the COLA (cost of living adjustment) for current recipients will be 1.6% in 2020. The increase will be welcome news, but have you ever wondered how the COLA is calculated?

Since 1975, Social Security’s COLA is tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). What might surprise you is how few months of the index are used in the calculation. Only readings from the third quarter (July through Sept) are considered.

To determine the next year’s COLA, the SSA compares the average reading from the current year’s third quarter CPI-W with the average reading from the third quarter of the previous year. If the current year’s reading is higher than the previous year’s, it implies inflation happened which increases the COLA for SS recipients.

The other interesting aspect of the COLA calculation relates to the index itself. The CPI-W tracks the increase in general price level for urban wage earners and clerical workers not retirees. It means the index has an underweight to expenses like healthcare and housing which are important to seniors and an overweight to the cost of education, apparel and transportation which aren’t impacting seniors’ budgets nearly as much.

What does a 1.6% increase mean to current beneficiaries? Since the average retired worker and disabled person receive approximately $1473 and $1236 per month, the 2020 COLA increases their checks $24 and $20, respectively. This increase is most helpful in offsetting any potential increase in Medicare premiums.

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