March 2024 Newsletter
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MARCH 2024

If you're interested in minimizing your tax obligations and maximizing your savings, consider the helpful tips and ideas you'll find in this newsletter.

Call if you would like to discuss how any of this information relates to you. If you know someone that can benefit from this newsletter, feel free to send it to them.

Upcoming dates
  • March 15
  • Due date for partnership and S corporation tax returns (Forms 1065, 1120S)

Save Hundreds of Thousands with this Simple Concept!

The Three Bucket Approach

Save Hundreds of Thousands with this Simple Concept imageAll money IS NOT created equal in the eyes of the taxman. Some is fully taxable while other money has a future tax bill attached to it. But the best is money that grows truly tax free! This approach to retirement income is often referred to as the three bucket approach and here is how it works.

The place to start is to divide all your savings into three buckets. The buckets are:

  • BUCKET 1: Taxable bucket. Savings in this bucket creates earnings that are subject to both federal and state income taxes. Examples include investments and various bank accounts.

    Goal: Fill your taxable bucket with enough money to cover 6 to 12 months of living expenses as well as enough to fund unexpected emergencies.

  • BUCKET 2: Tax-deferred bucket. Funds in this bucket are money you don't have to pay taxes on until a future date. Tax-deferred accounts include 401(k)s, traditional IRAs, SEP IRAs, and SIMPLE plans.

    Goal: Make tax-efficient withdrawals from this bucket that result in very little or no income tax liability whenever possible. For example, unplanned distributions from tax-deferred retirement accounts could inadvertently push your total taxable income high enough to cause some or nearly all of your Social Security benefits to be taxed!

  • BUCKET 3: Tax-advantaged bucket. This bucket contains money that will never be taxed. These accounts include Roth IRA and Roth 401(k) accounts, limited types of annuities, and select mutual fund accounts that are state tax exempt.

    Goal: Maximize the balance in this bucket to reduce future taxes AND provide funding flexibility to minimize the tax in your other two buckets. The key in this bucket is to FUND the bucket as tax efficiently as possible.

The three-bucket concept in action

Using this new found bucket knowledge:

  • First, fill up bucket one to ensure you have enough money in case of an emergency.
  • Always fill bucket two when contributions are matched by your employer or you can do so with earnings taxed at a low rate. So it could be a great option for a young worker!
  • This means look for opportunities to move funds into Roth accounts with lower tax rates by contributing to a Roth IRA or rolling funds into Roth IRAs.
  • Review your buckets EACH year for tax-efficient ways to move funds from buckets 1 AND 2 into bucket 3.
  • Calculate the tax-efficient income you can withdraw from retirement accounts each year before getting bumped into the next, higher tax bracket.

To recap, savvy tax planning includes understanding the three bucket concept - Taxable, Tax-deferred, and Tax-advantaged. Review each bucket every year and make adjustments as necessary to leverage this knowledge to your benefit.

Save Hundreds of Thousands with this Simple Concept! Image
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The Importance of a Beneficiary Review - Now!

The Importance of a Beneficiary Review Now imageIt's easy to lose track of beneficiaries you've assigned to your key accounts and other important documents. Should something happen to you, this situation can create a mess.

The best way to avoid this problem is to periodically review your beneficiaries and creating a simple plan to organize this task.

The importance of a periodic beneficiary review

  • To ensure your assets go to the intended recipients (and avoid probate). You’ll typically have beneficiaries for each of your IRAs, 401(k)s or other retirement plans, annuities and insurance policies. Often when you designate a beneficiary in one of these accounts, that person inherits the assets in the account, regardless of what your will might say. So, the only way to ensure your assets go to the intended recipients and to avoid a long, drawn out legal process (probate) is by periodically reviewing your designations.
  • To update your estate after a significant life event. Since you made your initial beneficiary choices, you might have gotten married, had children, or gotten divorced. Some of your chosen beneficiaries may have married, divorced or passed away. Or their circumstances may have changed so you no longer want them to be the beneficiary.
  • To respond to an increase or decrease in your wealth. Maybe you sold your business or inherited a trust. Perhaps you’ve experienced poor investment portfolio performance. As your wealth changes, you’ll need to consider how it affects your estate planning, and whether or not your beneficiaries still fit with your strategy.
  • To keep beneficiary reviews top-of-mind. Many assume reviewing beneficiaries on an annual basis is only for the super wealthy. Not so! Most employees have life insurance and retirement accounts that need beneficiaries identified. And the cost of not having the beneficiaries being current means the government's laws decide the process for you. This can create a huge delay in your heirs receiving funds during a time when they may need them the most.

Reviewing your beneficiary designations

Here are five steps to help you review and organize your beneficiary designations:

  1. Identify accounts. Obtain copies of the designations for the following (when applicable):
    • Will
    • Insurance policies
    • Bank accounts
    • Retirement savings accounts (IRAs, 401(k)s, etc.)
    • Company benefits
    • Pensions
    • College savings accounts
    • Annuities
    • Investment accounts
  2. Follow up on missing information. Request copies of beneficiaries if your records are missing. Double check their contact information and any name changes due to marriage or divorce.
  3. Review the designation allocation. Double check that assets are going where you want and that you’re minimizing taxes. Ensure that there are back-up beneficiaries when appropriate.
  4. Report revised designations to the account custodians. Obtain a written acknowledgment for each change you make to your beneficiary designations. Please be aware that banks and insurance companies sometimes lose forms, and that could thwart your planning.
  5. File acknowledgements. File the acknowledgments with your will and other estate planning documents. Then review and communicate clear instructions to someone so access to these records is available should you unexpectedly pass away or become incapacitated.

Review your beneficiary designations at least once a year to make sure they are still appropriate. They may be simple forms, but they’re too important to ignore.

The Importance of a Beneficiary Review - Now! Image
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As always, should you have any questions or concerns regarding your tax situation please feel free to call.

This newsletter is provided by

Simons Bitzer & Associates
8350 S EMERSON AVE STE 100
INDIANAPOLIS, IN 46237-8744
Phone: 317-782-3070
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simonsbitzer.com


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