Creating A Better Financial Plan

Posted on: 5 July 2018

When you're managing wealth, there are a number of elements you need to consider. You have to choose your investments, select the right charities, and find ways for your money to grow. At the same time, you also need to think about the taxes you might need to pay.

Luckily, The Tax Cuts and Jobs Act of 2017 brings in a number of changes for 2018, and some of these elements may help with your wealth management goals. Take a look at the following.

Increased Threshold for Estate Taxes

The new federal tax law doubles the estate tax exemption. As of 2017, you could avoid the estate tax as long as you had less than $5.49 million for a single person or double that amount for a couple, but as of 2018, those numbers go up to $11 million for a single person and $22 million for a married couple. Unfortunately, the law is only in effect until 2025.

Here's how the estate tax works. If you're under the exemption, you don't pay it at all. If you're over that threshold, you pay estate tax on any amount over the threshold after your death. For instance, if you are a single person with $40 million, you face estate tax on $29 million after your death. To figure out how much is going to be taxed, take the total value of your estate minus the threshold. In this case, that's $40 million minus $11 million, which equals $29 million.

Obviously, you probably don't want to die in the next seven years, and there is a chance that the law will be extended. If your estate is over this threshold, you may want to keep in mind that the rules might change again in seven years and make a note to consult with your wealth management services consultant at that time.

Increased Threshold for Gifts

One way people reduce the size of their estate is by giving away money while they are still alive. If you're worried that the estate tax might cut into the funds you leave your heirs, consider giving away some money to your heirs now. The new tax plan also makes that easier by increasing the size of the gift you can give away without facing the gift tax. As of 2018, you can give away up to $15,000 annually without any tax implications.

That's the highest this threshold has ever been. For the last five years, it was only at $14,000. Remember, this amount is per person. So, if you are a married couple and your son has a wife, you can give your son and his wife $15,000 each, and your spouse can also give them each $15,000, for a total of $60,000.

Note that you probably don't want to give over these thresholds. If you do, you either have to pay tax, or you have to let the Internal Revenue Service reduce your estate tax exemption. For instance, if you give away an extra million dollars, that pulls down your estate tax exemption by a million dollars.

New Rules for 529 Plans

You may also want to take advantage of the new rules associated with 529 plans. When you contribute money to these savings plan, the funds are after tax. That means you don't get to claim an income tax deduction like you do when you make a contribution to a 401k or many types of retirement accounts.

However, as the money in your 529 grows and earns interest, those earnings are tax free. In the past, you could only use these funds to pay for college tuition, but now, you can use them for private school tuition as well. If you have children, talk with your wealth management advisor about how to make this idea work for your family.

To learn more, contract a wealth management services professional. They can talk with you about how to make the most of your situation.