PREPARING NOW FOR 2016: THE ELECTIONS, TAXES & YOUR FINANCIAL PLAN

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1 PREPARING NOW FOR 2016: THE ELECTIONS, TAXES & YOUR FINANCIAL PLAN Advice that encompasses your goals for tomorrow and how you want to live today. CONTENTS INTRODUCTION ELECTION YEAR 3 TAX STRATEGIES 3 RETIREMENT PLANNING 5 CREDIT & LENDING 5 OTHER PLANNING 6 CONSIDERATIONS

2 INTRODUCTION With the warm days of summer officially behind us and the end of another year fast approaching, now is the time to prepare for In the near term, we will be working diligently with our clients to ensure they are checking off their to-do s, many of which are detailed in the pages that follow. But we also must consider what lies ahead in 2016 and beyond. How else can we expect to achieve the long-term goals we set for ourselves? That said, planning for the future is as challenging as ever as the rapid changes in our markets, economies, and policies continue to keep us on our toes. The world around us is evolving at perhaps a faster pace than ever before. Technology has become omnipresent, shifting the way we approach even the most mundane of daily routines our watches tell us how many steps we take in a day and our phones can control the temperature in our living room from the other side of the world. Innovation is also transforming how we manage our wealth values-based investment strategies are bringing social change to how we invest, non-traditional mutual funds are providing access to more liquid and regulated alternative strategies, and the robo-advisor is automating investing with algorithm-based portfolio management advice. Perhaps most amazing is the research that shows that 60% * of the world s population still does not use or have access to the internet. Rapidly advancing technologies will at some point collide with emerging economies, and this is certain to have a lasting impact on our day to day lives. 60% of world s population still won t have Internet by the end of Los Angeles Times. Los Angeles Times, n.d. Web. 02 Sept The information provided herein is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any federal tax penalties. Entities or persons distributing this information are not authorized to give tax or legal advice. Individuals are encouraged to seek specific advice from their personal tax or legal counsel. 2

3 2016 ELECTION YEAR Perhaps the biggest event on the horizon is the November election when we will choose our first new President since Election years present some distinct planning challenges. It is difficult to predict how an election result will impact the stock market, tax code, employment, healthcare, and social security among other things. There is no shortage of theories and punditry around the election s effect on personal finance. For instance: Statistics show that the market s worst-performing years have occurred when Republicans have controlled the Presidency, the House, and the Senate. Split control with a Democratic President and a Republican-controlled House and Senate has produced the best performance. 1 Presidential election cycle theory would have you believe that stocks will decline in the year following an election, and improve over the next three years. This would translate to strong returns during an election year. However the Dow s near 34% drop in 2008 makes us question how reliable this theory may be. Though the intense speculation on how the market may perform could be fun to watch, we will encourage our clients to focus on what we can control, namely asset allocation, tax efficiency and each individual s very personal goals and objectives. 1 The Gains for Gridlock. The Economist. The Economist Newspaper, 05 Nov Web. 31 Aug TAX STRATEGIES INCOME TAX PLANNING We highly recommend meeting with your tax advisor to review projections for the year and to determine alternative minimum tax (AMT) status. Depending on your situation, some strategies to consider include: Making additional property tax or state income tax payments prior to December 31. Take additional charitable deductions. If possible, look to push income to Tax-Loss Harvesting there could be opportunities to sell out of a down position to book the tax loss. You could repurchase the security after 31 days while owning the index in-between to maintain market exposure. ANNUAL EXCLUSION GIFTS The annual exclusion gifting limit is $14,000 per person in 2015, or $28,000 for married couples should the election be made to split gifts. Some important items to note: If you pay for an individual s medical or education expense by writing checks directly to the institution, your payment is not considered a gift. There is no limitation on your contributions. Contributions to 529 Plans are considered a gift. If you are actively participating in a 529 Plan, be sure to make your 2015 contributions soon to take advantage of the exclusion. If you intend to make a gift for 2015, we encourage you to do so by December 1. For your gift to be considered complete,the check must be cashed on or before December 31. It is a good idea to give the recipient ample time. For parents with children who earn income, use part of your annual gifting exclusion to fund a Roth IRA for each working child. This strategy helps transfer wealth to the next generation in a tax-efficient manner. If you own life insurance in an irrevocable life insurance trust, keep in mind that premiums paid on these policies are considered gifts and will count against your annual exemption. 3

4 TAX STRATEGIES CONTINUED LIFETIME GIFTS The lifetime gift exemption rose from $5,340,000 in 2014 to $5,430,000 in If you have used your entire exemption as of December 31, 2014, you can now gift an additional $90,000 in We expect another inflation adjustment for CHARITABLE CONTRIBUTIONS As always, your charitable contributions must be made prior to December 31 to be taken as a deduction on this year s return. If you intend to make gifts, we should consider a review of your portfolio, as you may have highly appreciated stock that could be used for additional tax leverage on your gift. By gifting appreciated securities, you will avoid paying capital gains taxes on securities held for more than one year. This same strategy can also be applied to other appreciated, publicly traded assets (i.e. privately held company stock or real estate). While using less liquid assets does add a layer of complexity, the potential capital gains savings can be significant. A Donor Advised Fund allows you to take an upfront charitable deduction for the full fair-market value of the assets contributed to the account. You can then send gifts from the fund to your favorite charities over a period of time. While Donor Advised Funds have become much more popular in the last few years, Private Foundations are still a viable option depending on a number of factors. The key benefits of the Donor Advised Fund is that it requires significantly less administration and can be created with a much smaller contribution (typical minimums are $5,000). However, a Private Foundation allows for greater flexibility in how the assets are invested, where grants can be made and how involved your family can be in the administration and mission of the Foundation. Generally, the minimum amount required to make the administration costs of a Foundation worthwhile is $250,000 to $500,000. QUALIFIED CHARITABLE DISTRIBUTIONS The tax law which allowed IRA account owners to send distributions directly to charity expired on December 31, 2013, but Congress issued a last minute extender this past December which put the law back on the books retroactively for We find ourselves in the same position this year the law technically expired on December 31, 2014, though it could be revived by Congress in December. This law provided a great benefit in that the income taken from an IRA could be excluded from taxable income (generally a better deal for taxpayers than an itemized deduction) and it could also count against the Required Minimum Distribution. We will keep you apprised of any developments. ADVANCED PLANNING & TAX STRATEGIES There have been several attempts in recent years to initiate legislation that would limit valuation discounts and put limits on the term of a GRAT. Each attempt has fallen short though we need to be vigilant that the possibility of such legislation remains. For now, structures such as Family Limited Partnerships and GRATs are still viable. The 7520 rate, which is used as a basis for GRATs and Intra-Family Loans, remains low at 2.2% for the month of September. If these strategies are of interest to you, we should take action as soon as possible. 4

5 RETIREMENT PLANNING REQUIRED MINIMUM DISTRIBUTIONS If you are 70½ you must take your Required Minimum Distribution for If you have several IRA accounts, you may take the distribution from just one, but the distribution must be calculated on the aggregate of your IRA balances. Please note that if you are a recent recipient of an Inherited IRA, you must take distributions by December 31 of the following year of the original owner s death. RETIREMENT PLAN CONTRIBUTIONS If you have a 401(k) or certain other Deferred Compensation plans, remember to make your allowable 2015 contributions before year-end. While IRA structures such as a SEP IRA provide additional time to make 2015 contributions beyond December 31, you should speak with your CPA to determine what your 2015 contribution can be. If you have started new businesses and may not have set up a retirement plan, we recommend you sit with your Lenox team to determine if a plan makes sense, and if so, what type. ROTH 401(K) Many plans are now offering a new option for 401(k) contributions. While you are likely familiar with the traditional, pre-tax salary deferrals, you may also have the options of electing a Roth 401(k). With traditional contributions, the amount is excluded from your income and then grows tax deferred until you make a withdrawal. Assuming the withdrawal is made after age 59½ (to avoid the 10% penalty on early withdrawal), you would pay ordinary income tax on the amount that is withdrawn. With the Roth, you are contributing after-tax money, but both the contribution and all future growth will grow tax-free, and there will be no tax due when the money is withdrawn. To participate, your 401(k) plan must allow for the Roth 401(k) option and many employers have added this feature. The decision to elect the traditional or the Roth 401(k) is complex and is based on a number of factors. Your Lenox Team is available to discuss your personal strategy. NON-DEDUCTIBLE CONTRIBUTIONS Another new concept available in some employer-sponsored retirement plans is to make deferrals beyond the 401(k) contribution limit ($18,000 for 2015). You may be able to make a non-deductible deferral beyond the 401(k) limit up to the defined contribution plan limit ($53,000 for 2015). Recent changes allow non-deductible contributions to be allocated when you separate from your firm and roll the assets to an IRA. As of January 1, 2015, you can differentiate how certain deferrals are allocated to different retirement accounts. For example, if you have $20,000 in pre-tax deferrals in your 401(k), $50,000 of non-deductible deferrals, and $10,000 of growth on the non-deductible deferrals, you could make a roll over as follows: $30,000 to a Traditional IRA ($20,000 from the 401(k) and $10,000 of growth on the non-deductible portion) and $50,000 to a Roth IRA (from the non-deductible deferral). This strategy allows you to make significant future contributions to a Roth IRA account. CREDIT & LENDING MORTGAGE RATES AND REFINANCING We mentioned last year that 2015 might represent the home stretch in the mortgage refinance marathon that started several years ago. As we go to press, the Fed is preparing for its Federal Open Market Committee meeting on September 16 and 17. While recent market volatility has made it less likely for rates to move in September, it seems only a matter of time now. We remind you once again, this could be your last chance to either tackle a refinance or to move from a variable rate loan to a longer-term fixed rate loan with a reasonable rate. CREDIT REPORTS Yearly, you should review your full credit report. For those of you who have not done so already, you should consider signing up for a Credit Monitoring service. Though far from foolproof, it can be a valuable tool in protecting yourself from identity theft. 5

6 OTHER PLANNING CONSIDERATIONS PORTFOLIO REVIEW AND REBALANCE We encourage you to review your portfolio in detail to ensure your overall asset allocation is appropriate. It is important to consider asset location to maximize tax efficiency. To whatever extent possible, you should own your tax-inefficient asset classes in your IRA, 401(k), and other tax-deferred accounts. HEALTH SAVINGS & FLEXIBLE SPENDING ACCOUNTS Remember to submit all your claims prior to December 31 if you have a Flexible Spending Account, or you risk losing the funds you have saved. While it is not required to submit for reimbursement for Health Savings Accounts, we do encourage you to keep your receipts and records in good order, so they are available when you are ready to submit. FIDUCIARY APPOINTMENT/BENEFICIARY DESIGNATION REVIEW Year-end is an excellent time to review your fiduciary appointments in your estate planning documents. Are the people you have listed still the people you want to serve in your stead should something happen? Review your beneficiary designations on all accounts that will pass upon your death via these appointments. Beneficiary-driven accounts include: 401(k), 403(b), and 457 Plans Traditional and Roth IRA Accounts Life Insurance Policies Annuity Contracts Deferred Compensation Agreements If you are listed as a Fiduciary in somebody else s estate planning documents, you have a legal responsibility to ensure that the investments, insurance and other assets held in that plan are both performing well and adequate to the goals of the plan. Your Lenox team can assist you in evaluating your responsibilities EXPENSE BUDGET Keeping a reliable annual budget is one of the central building blocks to solid long-term financial planning. Whether you use Excel, Quicken, or a good old-fashioned check register, now is a good time to review your spending for the past year and to create some goals for As always, your Lenox team is ready and available to assist with this sometimes daunting task. In addition to evaluating your annual expenses, we find it useful to set very specific annual savings targets based on your total income and expense structure. Your Lenox team can take you through this exercise as well. TIME IS OF THE ESSENCE As we near the end of 2015 and begin preparing for 2016, it is important to reflect on the changes you have experienced over the last year. By reviewing your total financial picture now, Lenox Advisors can help ensure you make any crucial money moves before year-end. KEY DATES: September 15 October 15 December 1 December 31 3rd Quarter 2015 Estimated Tax Payment Due Extended individual tax returns due Last chance to re-characterize 2014 Roth IRA conversion Execute any gifting checks, must be deposited by recipient by Dec. 31 Last day to make any tax moves for the year 2015 MML Investors Services, LLC does not provide tax or legal services. Securities and investment advisory services offered through qualified registered representatives of MML Investors Services, LLC, Member SIPC Fifth Avenue, 14th Floor, New York, NY 10036, Fee based financial planning services are offered through Lenox Advisors, Inc. a registered investment advisory firm, and are not offered or sponsored by MML Investors Services, LLC. Lenox Advisors, Inc. is not a subsidiary or affiliate of MML Investors Services, LLC. Lenox Advisors, Inc. is a wholly owned subsidiary of NFP Corp. NFP Corp. is not a subsidiary or affiliate of MML Investors Services, LLC or its affiliated companies. FP145 CRN