As the April tax filing deadline looms, many investors are thinking about the taxes they will have to pay. In the end, though, it’s not what you make that’s important, but what you keep — net of fees, expenses and income tax. Investing in tax-exempt investments can reduce or eliminate your income tax and may provide you with higher net returns than taxable investments.

If you are in a higher tax bracket for federal and/or state tax, a lower tax-exempt yield can provide you with more net income than a higher taxable investment. For example, if you are in the 32 percent federal tax bracket, a 5 percent tax-exempt investment is equivalent to a 7.35 percent taxable investment. In general, the higher your tax bracket, the more you can benefit from tax-efficient investing.

Used properly, with the guidance of your advisory team, tax-exempt investments may provide you with significantly more net return. Managing your tax burden is one of the most valuable benefits you derive from working with our team.

Let’s look at five of the most common financial avenues that enable investors to take advantage of tax-exempt investing.

1. Municipal bonds

Municipal bonds, also known as munis, are debt instruments issued by states and local governments that allow investors to earn interest without having to pay income taxes on the proceeds. Investing in munis can be an effective way for individuals to reduce their overall income tax burden because income is not subject to tax.

Investors can buy the bonds themselves or can buy pooled investments such as mutual funds, unit trusts or exchange-traded funds (ETFs).

Some experts say 2023 looks to be a great year for munis, which is great news because 2022 was a tough year for many  fixed-income asset classes. Yields are now higher for muni bonds than at any other time in the past 15 years. While past performance doesn’t guarantee future results –  dating back to 1989, a down year in the municipal bond market has been followed by at least one year (or several) of positive returns.

2. 529 plans

Another type of tax-exempt investing is a 529 plan, which is a state-sponsored educational savings plan that offers tax benefits when the funds are used for qualified education expenses. Investments in these plans may also offer a deduction on your state tax return.

3. Health savings accounts

Health savings accounts, or HSAs, are the only type of account that offers triple tax benefits. Many medical insurance plans and policies with high deductibles make the insured eligible for contributions to HSAs.

Contributions up to an annual limit are tax-deductible when you make them and are excluded from your gross income when your employer makes them. The account can be invested, and the earnings compound tax-free in the account. Also, distributions from an HSA are tax-free when they are used to pay for or reimburse you for qualified medical expenses that aren’t reimbursed by other sources. Plus, if you incurred unreimbursed medical expenses in earlier years, the HSA can reimburse you for them in the current year, tax-free. Talk to your advisor about moving money from a taxable financial account to an HSA.

4. Employer-sponsored retirement plans

If you work for a company that offers a ROTH  401(k) retirement savings plan, consider maxing out the contributions you make to your account, if you aren’t already doing so, because you can make the contributions on a pretax basis.  Funds grow without tax and all earnings may be tax free if taken after the age of 59 ½.  

5. Long-term capital gains

Investment taxes, called capital gains, come in both long-term and short-term categories. A long-term capital gain is a tax on any investment you’ve held for at least one year, while short-term capital gains are those assessed on investments you’ve held for less than a year.

If you can reach the long-term threshold, your tax treatment will be significantly better. This is because short-term capital gains taxes are levied based on normal income tax brackets, while long-term capital gains have much lower rates of 0 percent, 10 percent, 15 percent, or 20 percent.

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Overall, tax-exempt Investing can be an effective way for individuals to reduce their overall income tax burden. By investing in the products discussed here, you can maximize the amount of money you keep for yourself. These types of investments can also provide a stable stream of income with minimal risk.

Yes, “the tax man cometh,” as the old saying goes, but with the proper planning, you can pay “the tax man” less and keep more for yourself!

We Are Always Here for You

Investing in tax-exempt, or tax advantaged investments can be a great way to minimize your income tax liability and put more money in your pocket. However, it is important to understand the different types of investments available and the associated risks. Also, it’s important to remember that the tax benefits of these investments can vary depending on your particular tax situation. As such, it is always wise to consult with a qualified tax advisor before making any investment decisions.

Our team focuses on helping you achieve your vision in the most tax-efficient manner possible. While we can’t control markets, we often can control the tax implications of portfolio management.

Whether you would like a second opinion on what you are doing or need help designing a new financial plan, please reach out to us, without cost or obligation.

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Randy Carver, CRPC^®, CDFA^®, is the president and founder of Carver Financial Services, Inc., and is also a registered principal with Raymond James Financial Services, Inc. Carver Financial Services, Inc. was established in 1990 with the vision of making people’s lives better — clients, team and community. With this mission, Carver Financial Services has grown to be one of the largest independent financial services offices in the country, managing $2.2 billion in assets for clients globally, as of December 2022. Randy and his team work with individuals who are in financial transition as a result of divorce, retirement or the sale of a business. You may reach Randy directly at randy.carver@raymondjames.com in the office at (440) 974-0808.

 

 

 

The New Year is always a good time to reflect on what’s important in life and what can make us happy. Carver Financial Services, Inc., was founded with the unique vision of making people’s lives better.

The old adage “Money can’t buy happiness” has been around for a long time. We might be inclined to believe this saying when we think about all the ultra-wealthy people who were chronically unhappy and destroyed their lives, craving and seeking something more meaningful.

But many people argue that money can buy happiness. So, which statement is true? As it turns out, there is some truth in both arguments. For example, a Harvard University Business School professor says financial stability helps people escape the everyday hassles of life and brings us more control.

The importance of relationships for happiness

Through decades of research, Harvard psychiatrist Dr. Robert Waldinger has been attempting to discover the factor that seems to make the biggest difference in people’s lives. Waldinger is a co-author of The Good Life: Lessons from the World’s Longest Scientific Study of Happiness.

He says relationships are the key to happiness. The stronger our relationships, the more likely we are to live happy, satisfying and overall healthier lives. In fact, the Harvard Study of Adult Development reveals that the strength of our connections with others can predict the health of both our bodies and our brains as we go through life.

There are many other factors that contribute to happiness as well, and what is important will vary from person to person. Here are a few elements that people often cite as being important for happiness, with strong relationships listed first:

1. Strong relationships: Having close, supportive relationships with friends and family can bring a sense of connection, belonging and purpose to our lives.
2. Personal growth and fulfillment: Pursuing activities that challenge us and allow us to learn and grow can bring a sense of accomplishment and fulfillment.
3. A sense of purpose: Having a sense of purpose — of meaning in life — can give us direction and motivation.
4. Financial stability: While money can’t buy happiness, having a stable financial foundation can remove a significant source of stress and allow us to focus on other areas of our lives.

How does wealth contribute to happiness?

People often view wealth as a means to an end, a way to provide for basic needs and wants. However, the role of money in our lives goes beyond just meeting our material needs. The old adage “Money can’t buy happiness” doesn’t hold up to the scrutiny of many recent research studies.

In fact, a 2021 Proceedings of the National Academy of Sciences (PNAS) study found that happiness actually increases as people’s income rises. The more money we make, the happier we become — or rather, we have the means to buy the things or experiences that make us happy. The study concluded that there is a direct connection between higher incomes, feeling better day-to-day and being more satisfied with life overall.

But one licensed mental health therapist, Billy Roberts, says money doesn’t directly contribute to our happiness. Instead, money can make us happy if it enables us to live by the values we’ve defined as important. Roberts says that for some people, value lies in power, while others find value in security or self-care. And people with different needs will likely have different financial needs. He concludes that a person’s salary should support a value-driven lifestyle.

Let’s look at some of the values people consider important and how they relate to financial well-being:

1. Financial stability and security: Having a stable financial foundation allows us to feel secure and confident in our ability to meet our needs and the needs of our loved ones. It can also give us the freedom to make choices and pursue opportunities that might not be available to us otherwise.
2. A sense of independence: Financial independence allows us to make our own decisions and not have to rely on others for financial support. It can also give us the freedom to pursue our passions and interests without the constraints of financial insecurity.
3. Enhanced overall well-being: Studies have shown that having a stable financial situation is linked to better mental and physical health. Financial stress can take a toll on our well-being, so having a healthy financial situation can help us feel more balanced and at ease. This is because higher income can provide access to a range of resources and opportunities that can promote good health, such as:

• Access to health care: Higher income can afford individuals and families access to quality healthcare services, including preventive care, diagnostic tests, and treatments.
• Nutritious food: Higher income can allow individuals and families to afford a varied and nutritious diet, which is important for maintaining good health.
• Stress reduction: Higher income can also reduce financial stress, which can have a positive effect on physical and mental health.
  • It’s important to note that while income can be a key factor in determining health outcomes, it is not the only factor. Other determinants of health include genetics, lifestyle and            environmental factors.

4. The ability to make a positive impact for others: Having financial resources can allow us to give back to our communities and make a positive difference in the world. Whether it’s through charitable donations, volunteering our time or supporting causes we care about, money can give us the means to make a positive impact, and that is a key to happiness for those who value doing so.

Keep your eyes on your Personal Vision

What brings you the most happiness? And how is that element of life related to money? What can you do to derive more happiness in 2023?

While money certainly isn’t everything, it can play a significant role in our lives and help us achieve our goals and aspirations. Ultimately, happiness is a complex and multifaceted emotion that depends on an individual’s values, goals and circumstances. It’s important to focus on what brings us joy and fulfillment and to make an effort to cultivate positive relationships and experiences in our lives.

At Carver Financial Services, we are focused on making lives better. We do this by financial and wealth planning and by providing experiences for our clients and community, ranging from travel to educational seminars. Most importantly, we use our proven Personal Vision Planning^® process to enable you to achieve your perfect vision of retirement. We are here to listen to what each client’s vision is for the future and then to help develop and implement a personalized plan for achieving that vision.

Please reach out, without cost or obligation, if we can answer questions or be of service as you develop your vision. You can learn about upcoming events on our website and also in some of our videos on timely and timeless topics that may be of interest to you.

We are here for you and look forward to helping you find what makes you happy and fulfilled in 2023 and beyond.

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Randy Carver, CRPC^®, CDFA^®, is the president and founder of Carver Financial Services, Inc., and is also a registered principal with Raymond James Financial Services, Inc. Carver Financial Services, Inc. was established in 1990 with the vision of making people’s lives better — clients, team and community. With this mission, Carver Financial Services has grown to be one of the largest independent financial services offices in the country, managing $2.2 billion in assets for clients globally, as of December 2022. Randy and his team work with individuals who are in financial transition as a result of divorce, retirement or the sale of a business. You may reach Randy directly at randy.carver@raymondjames.com in the office at (440) 974-0808.

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The SECURE Act 2.0, which was signed into law on December 29, 2022, is intended to make retirement planning easier and more secure. This is great news because Americans are chronically behind in saving for retirement.

On average, Americans have around $141,542 saved up for retirement, according to the “How America Saves 2022” report compiled by Vanguard, an investment firm that represents more than 30 million investors. However, most people likely have much less. The median 401(k) balance is just $35,345.

The SECURE 2.0 Act attempts to accomplish three goals: Get people to save more for retirement, improve retirement rules and lower employer’ costs of setting up a retirement plan. Some provisions went into effect starting January 1, 2023, while others will go into effect in 2024, 2025 and even later.

How the SECURE Act 2.0 Boosts Retirement Saving

The SECURE Act 2.0 (Securing a Strong Retirement Act of 2022), is an expansion of the SECURE Act, which was signed into law in 2019. The acronym SECURE stands for “Setting Every Community Up for Retirement Enhancement.” The newer bill expands on the original legislation, with new provisions and more opportunities for individuals and employers to save for retirement. This new law aims to make it easier for individuals and employers to save for retirement, and it will provide more secure retirement options.

Most of the changes under the new rules will be phased in over the next few years; they do not take effect right away.

Here are just some of the many ways this legislation will make it easier to save money for retirement:

• Increases the amount that individuals can save in their retirement plans
• [LM1] Enables part-time employees to contribute to 401(k) plans to save for retirement
• Provides tax credits for small employers who offer retirement plans
• Raises the age for required minimum IRA distributions to 73 for 2023 and eventually to age 75
• Allows employers to make 401(k) matching contributions based on employees’ student loan payments
• Allows employees to open emergency savings accounts inside their 401(k) plans
• Enables people to make tax-free and penalty-free rollovers from 529 college savings plans to Roth IRAs, subject to certain limitations
• Allows SEP and Simple IRAs to accept Roth contributions, which are made with after-tax dollars
• Requires automatic enrollment in 401(k) and 403(b) plans.Now, any employer that starts a new plan must automatically enroll newly hired workers, when eligible, and start their contributions at 3 percent of their pay. They can opt out of making these contributions, but they no longer have to opt in. This will help increase the number of people who participate in these retirement savings plans through employers.

Be Aware of Provisions That Might Not Benefit You

As with many situations in life, there are some potential downsides to the SECURE Act 2.0 It is important for you to work with your team of fiduciary advisors to be aware of all the provisions of this legislation so you can avoid potential pitfalls.

For example, in the past, beneficiaries of individual retirement accounts (IRAs) could take distributions from the deceased’s plan over the course of their lives, but now, the new rules state that most non-spousal recipients must take all their distributions within ten years. That could create a real challenge, especially if the beneficiary is employed and those distributions bump him up into a higher tax bracket.

As Always, We Are Here for You!

The SECURE Act 2.0 contains 92 new provisions to promote savings, boost incentives for businesses and offer more flexibility to those saving for retirement.

We are here to guide you through the new rules and to ensure we leverage them to benefit you. Please work with your team of advisors to learn which of the provisions of the new SECURE Act could impact your situation, and how.

We develop comprehensive plans that allow our clients to enjoy their lives today while saving for the future. We can review your current retirement plan and investments for you without cost or obligation. It is never too early or too late to plan for your future. We have helped thousands of people enhance and maintain their lifestyles while simplifying their lives — and we look forward to helping you. Reach out to us any time we can be of service to you, your family or your friends.

 

• [LM1] Employers already offer matching contributions to employees.

Randy Carver, CRPC®, CDFA®, is the president and founder of Carver Financial Services, Inc., and is also a registered principal with Raymond James Financial Services, Inc. Carver Financial Services, Inc. was established in 1990 with the vision of making people’s lives better — clients, team and community. With this mission, Carver Financial Services has grown to be one of the largest independent financial services offices in the country, managing $2.2 billion in assets for clients globally, as of December 2022. Randy and his team work with individuals who are in financial transition as a result of divorce, retirement or the sale of a business. You may reach Randy directly at randy.carver@raymondjames.com in the office at (440) 974-0808.

The information contained in this post does not purport to be a complete description of the securities, markets or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Randy Carver and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice.

Returns are based on the S&P 500 Total Return Index, an unmanaged, capitalization-weighted index that measures the performance of 500 large capitalization domestic stocks representing all major industries. Indices do not include fees or operating expenses and are not available for actual investment. The hypothetical performance calculations are shown for illustrative purposes only and are not meant to be representative of actual results while investing over the time periods shown. The hypothetical performance calculations are shown gross of fees. If fees were included, returns would be lower. Hypothetical performance returns reflect the reinvestment of all dividends. The hypothetical performance results have certain inherent limitations. Unlike an actual performance record, they do not reflect actual trading, liquidity constraints, fees and other costs.

Also, because the trades have not actually been executed, the results may have under- or overcompensated for the impact of certain market factors such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. Returns will fluctuate and an investment upon redemption may be worth more or less than its original value. Past performance is not indicative of future returns. An individual cannot invest directly in an index.