2022 Wealth Strategy Planning Guide

March 4, 2022

NewEdge Wealth is a business built upon a foundation of safety, objectivity, differentiated technology, and the in-house intellectual capital capability and customer services experience our clients have come to expect.

Over the years, everything we have done has been aimed at creating the best solutions and providing our best advice across investments, credit, and financial planning.

To assist clients with the many areas of financial consideration for 2022, we have summarized some key topics to review below. As always, please don’t hesitate to reach out to your NewEdge Wealth team if you have any questions.

 

Planning Ahead

The start of every new year provides an excellent opportunity to thoughtfully review the existing plan in place for your wealth and evaluate where updates are needed. Consider proactively reviewing the following areas to make sure you are up to speed.

  • Tax Planning: Meet with your accountant or CPA to plan around any potential events or changes that may require planning around taxes in 2022.

  • Charitable Planning: Consider if you may benefit from an outsized deduction in 2022 and how to best plan around your charitable goals. This should be a consideration ahead of any potential transaction where significant gains are possible. Investment Planning, Asset Location & Allocation: Speak to your NewEdge Wealth team regarding any changes in your personal or financial circumstances that may require a course correction. Consider how your portfolio and cash flow strategy optimize your savings and asset positioning for enhanced levels of tax diversification. Retirement accounts, life insurance policies, trusts, and 529 plans are some ways to better manage tax exposure.

  • Education Planning: With tuition costs rising at rates as high as 11% above inflation for public four-year institutions and 14% above inflation for private nonprofit four-year institutions over the last ten years, it is important to consider whether it makes sense to utilize college savings options or pay tuition directly based on your personal financial situation.

  • Estate Planning: Meet with your estate planning attorney or NewEdge Wealth Strategist to reacquaint yourself with your estate planning documents, previously executed strategies, current asset titling, and the projected growth of your taxable estate. Consider utilizing lifetime gifting exemptions based on current elevated limits. This is particularly important to review if you have experienced a significant life event, expect any significant increase in asset values, or foresee a liquidity event on the horizon.

  • Beneficiary Designations: Review your current beneficiary designations to ensure they align with your intentions and reflect any life events. It is often disadvantageous to leave your retirement assets to your estate.

  • Insurance Planning: Review your life insurance and your property and casualty insurance needs with your agent or NewEdge Wealth Strategist to determine if current coverage is appropriate given your specific circumstances. Additionally, reconfirm ownership of policies to ensure the transfer of proceeds align with your intentions and estate planning goals.

  • Next Generation: 70% of families lose their wealth by the second generation and 90% will lose it by the third.[1] Many families struggle to know the proper timing and approach to conversations about family wealth and how it impacts their children. Open discussions with the next generation help to ensure that your children will be good stewards of the wealth, preserving your family legacy for future generations. Reach out to your NewEdge Wealth team to learn how to best engage the next generation based on your personal circumstances. Please reference our whitepaper titled “Strategies for Preparing the Next Generation for Wealth.”

  • Utilizing Debt for 2022 Expenses: In the event you have a liquidity need, consider using your NewEdge credit line to cover upcoming tax obligations, home improvements, or other one-time expenses. Funding such expenses with portfolio assets can disrupt long-term investment strategies, increase future tax obligations, or lead to missed opportunities for potential growth. Short term financing strategies also purchase time to further evaluate appropriate and flexible payment plans, while also taking advantage of low interest rate product solutions.

 

Notable Legislative Updates for 2022

 
Build Back Better Act (BBBA)

Ordinarily, taxpayers would enter a new year with an understanding of what has changed from the prior year, but that isn’t necessarily the case in 2022. Due to a very narrow Democratic majority in the House and Senate, the initially discussed dramatic changes related to the Build Back Better Act (BBBA) have stalled, resulting in very few changes for taxpayers in 2022. While we anticipate a continued uphill battle for BBBA progress in 2022, we will continue to monitor whether the bill gains traction in Congress and what changes result.

Below is a summary of the changes made to the latest version of BBBA, which are still in flux[2]:

* Taxable income thresholds: $400,000 for single taxpayers (or married filing separately); $450,000 for married filing jointly; and $425,000 for the head of household.

 

Qualified Small Business Stock

The current version of the BBBA Act would eliminate the commonly discussed 100% exclusion rate for gains realized from QSBS eligible assets for taxpayers with an adjusted gross income (AGI) of more than $400,000. Instead, only a 50% exclusion would remain available to taxpayers whose AGI exceeds $400,000. This change would apply to a sale or exchange of QSBS occurring after September 13, 2021, subject to a binding commitment exception. It is unclear whether upon final passage, the effective date would be moved up or continue to be retroactive to September 13, 2021.

Note that the tax rate on the gain that is not excluded by the exemption amount may have a higher rate than standard capital gains rates, generally 28% plus the addition of NIIT[3].

 

SECURE Act 2.0

Under the Build Back Better Act (BBBA), “Backdoor” Roth contributions may be disallowed as early 2022, prohibiting after-tax IRA and qualified retirement plan contributions from being converted to a Roth account. In addition, Roth conversions may be disallowed for high income taxpayers, with a potential beginning date of 2032. The change in conversions provides a good catalyst to consider if a conversion from traditional to Roth IRA would be advantageous.

Additionally, given bipartisan support, expectations are high for the SECURE ACT 2.0 retirement legislation to be passed in 2022.

Below is a summary of the current proposals[4]:

 

Estate Planning

The 2017 Tax Cuts and Jobs Act (TCJA) significantly increased the estate exclusion amount (presently $12.06 million per person for 2022), though there had been concern that individuals taking advantage of the higher exclusion amount might one day owe additional tax for prior gifts, should the estate exclusion decrease (either before or after 2025). In November 2019, the Treasury Department and the IRS issued final regulations that individuals utilizing the increased gift and estate tax exclusion amounts (scheduled for 2018 to 2025) would not be adversely impacted should the exclusion revert to pre-2018 levels.

Additionally, many states have estate exclusions that are far below the federal level which may result in state estate taxes. It is important to make sure your current estate plan incorporates both the federal and state estate tax limits.

Key Takeaway: Individuals who have – or are likely to have – a taxable estate and who have sufficient assets to support their lifetime spending needs (“Personal use capital”) may want to consider gifting additional assets to loved ones while the exclusion amount stands at an increased level (“Legacy capital”). Gifting assets with a likelihood of appreciation post-gift is most advantageous.

[5]

While the 2017 Tax Cuts and Jobs Act (TCJA) increased the federal estate tax exclusion, under the tax reform law, the increase is only temporary. Thus, in 2026, the BEA is due to revert to its pre-2018 level of $5 million adjusted for inflation.[6]

Chart, treemap chart

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Social Security

For 2022, the Cost-of-Living-Adjustment (COLA) results in a 5.9 percent increase to Social Security retirement benefits. The adjustment represents the largest single year boost since 1983 (+7.4 percent). Prior to 2022, COLAs had averaged a modest +1.65 percent increase over the past decade. In 2021, the average monthly Social Security retirement benefit was $1,565, which would increase to approximately $1,657 following the 2022 COLA.

 

2022 Federal Income Tax Brackets[7]

Additionally, 41 states have individual income taxes. It is important to stay up to date on your current state income tax brackets.

 

2022 Long Term Capital Gains Tax Rate – Based on Taxable Income

Each state has its own method of taxing long term capital gains. While many states tax long term capital gains the same as ordinary income, it is important to understand how your state taxes long term capital gains, the impact it may have on you, and to what extent.

 

Net Investment Income Tax (NIIT): 3.8%[8]

Created as part of the Health Care and Education Reconciliation Act to fund healthcare reform in 2010, the net investment income tax (NIIT) is a 3.8% surtax that typically applies only to high earners with considerable investment income. The tax is assessed on the lesser of net investment income or Modified AGI above threshold:

  • $200,000 for Single/Head of Household
  • $250,000 for Married Filing Jointly
  • $125,000 for Married Filing Separately

Note: These threshold amounts are not indexed for inflation.

 

Medicare Surtax: 0.9%

On earned income above:

  • $200,000 for Single
  • $250,000 for Married Filing Jointly
  • $125,000 for Married Filing Separately

Note: These threshold amounts are not indexed for inflation.

 

2022 Standard & Itemized Deductions[9]

Taxpayers may take the greater of the standard deduction or total itemized deductions.

 
Standard Deduction:
  • Single: $12,950
  • Married Filing Jointly: $25,900

Itemized Deductions (may include the following):
  • Medical expenses greater than 7.5 percent of adjusted gross income are deductible
  • SALT deduction capped at $10,000 for the sum of: 1) property taxes and 2) greater of state and local income taxes or sales taxes
  • Home mortgage interest on mortgages up to $750,000. (Note: Mortgages before December 15, 2017 up to $1 million grandfathered.)
  • Charitable contributions (subject to AGI limits based on contributed property and receiving charity)

 

Retirement Benefit Limits[10]

Ways to Maximize Retirement Savings Beyond your 401(k):[11]

Once you maximize contributions to retirement plans (401(k), 403(b)) and defer at least your company’s match, investors can look to take advantage of the following:

  • Maximize after-tax assets in your portfolio:
    • Maximize contributions to after-tax accounts
    • Consider Backdoor Roth IRA contributions (if allowable)
    • Consider Roth IRA conversion
  • Consider establishing a Spousal IRA
  • If self-employed, maximize retirement savings by contributing to a SEP-IRA, Keogh, Defined Benefit Plan or Solo 401(k)

The “Stretch IRA” Replaced by 10-year Rule

The SECURE Act largely eliminated the “stretch IRA.” As a result, most non-spouse beneficiaries can no longer ‘stretch’ the IRA out over their lifetime. Instead, they are required to fully withdraw inherited retirement account assets within ten years of the account owner’s death. Importantly, beneficiaries do not need to make withdrawals each year over the 10-year period. Instead, consider deferring withdrawals into tax year(s) when taxable income will be lower.

 
Who is Still Eligible for the Extended Payout Period?
  • Heirs of IRAs whose original owners died before 2020
  • Surviving spouses
  • Chronically ill or disabled heirs
  • Heirs within 10 years of age of the original owner
  • Minor children of the account owner, up to the age of majority or age 26 if the child is still in school; at that point, the 10-year payout begins

Traditional Versus Roth[12]

Review objectives and marginal income tax brackets to evaluate whether to contribute to a Traditional retirement account, a Roth retirement account, or a combination of both.


Sources

  1. TIME

  2. Fiducient, 2022 Financial Planning Guide

  3. EisnerAmper

  4. Fiducient, 2022 Financial Planning Guide

  5. Forbes, The Tax Foundation

  6. Internal Revenue Service

  7. The Tax Foundation, Fiducient 2022 Planning Guide

  8. The Tax Foundation, Fiducient 2022 Planning Guide

  9. The Tax Foundation

  10. Internal Revenue Service

  11. Fiducient, 2022 Financial Planning Guide

  12. Internal Revenue Service, Charles Schwab, Fiducient 2022 Planning Guide

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IMPORTANT DISCLOSURES

The views and opinions included in these materials belong to their author and do not necessarily reflect the views and opinions of NewEdge Capital Group, LLC.

This information is general in nature and has been prepared solely for informational and educational purposes and does not constitute an offer or a recommendation to buy or sell any particular security or to adopt any specific investment strategy.

NewEdge and its affiliates do not render advice on legal, tax and/or tax accounting matters.  You should consult your personal tax and/or legal advisor to learn about any potential tax or other implications that may result from acting on a particular recommendation.

The trademarks and service marks contained herein are the property of their respective owners. Unless otherwise specifically indicated, all information with respect to any third party not affiliated with NewEdge has been provided by, and is the sole responsibility of, such third party and has not been independently verified by NewEdge, its affiliates or any other independent third party. No representation is given with respect to its accuracy or completeness, and such information and opinions may change without notice.

Investing involves risk, including possible loss of principal.  Past performance is no guarantee of future results.

Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No assurance can be given that investment objectives or target returns will be achieved. Future returns may be higher or lower than the estimates presented herein.

An investment cannot be made directly in an index. Indices are unmanaged and have no fees or expenses. You can obtain information about many indices online at a variety of sources including:  https://www.sec.gov/fast-answers/answersindiceshtm.html or http://www.nasdaq.com/reference/index-descriptions.aspx.

All data is subject to change without notice.

© 2022 NewEdge Capital Group, LLC

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