2018 Limits Limits 2018 Limits

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2 Outline Tax Reform & Planning Implications Product Update Highlight Alts Wholesaler Shuffle diagram Gain/Loss vs. ROR Explanation Client Goals Pilot NPA Models?

3 2018 Limits 2017 Limits 2018 Limits Defined Benefit $215,000 $220,000 Defined Contribution $54,000 or 100% of pay $55,000 or 100% of pay 401(k) Elective Deferral $18,000 ($6,000 catch up) $18,500 ($6,000 catch up) SEP IRA 25% up to $54,000 25% up to $55,000 Annual Gift Exclusion $14,000 $15,000

4 Tax Reform Changes Income Taxes: State and Local Income and Property Taxes: Deduction limited to $10,000. Miscellaneous Deductions no longer allowed CPA Fees, investment fees, IRA losses from terminated IRA Deduction limit for Charitable gifts 60% of AGI Alimony no longer taxable to recipient, not deductible to payer, effective 2019 Alternative Minimum Tax exemption increased, and phase out threshold increased

5 Tax Reform Changes Estate Tax $11,200,000 per individual, step up at death Roth conversions no more recharacterization 2018, can recharacterize 2017 conversions Back door Roth no more concern over step transaction 529 Plans up to $10,000 per student for elementary and secondary school Tax Bracket increases C CPI U vs CPI U

6 Tax Reform Changes EE Terminated with Qual Plan Loan was 60 day rollover, now due date of tax return for year of term Individual Health insurance mandate penalty set to $0 Medical Expenses decreased to 7.5% of AGI for 2 years, 2017 and 2018 Mortgage Interest deduction limited to mortgages of $750,000 or less, grandfathered for loans before 12/15/2017. No deduction on home equity loans, NOT grandfathered

7 Tax Reform Increase of Standard Deduction, elimination of exemptions, but increase in child tax credit: Family of 4 $165,000 AGI Old New Difference Standard Deduction 12,700 24, ,300 Exemptions 16, ,200 Pre Credit Deduction 28,900 24,000 4,900 Child tax credit threshold 110, , ,000 Child tax credit amount 0* 4,000 +4,000 Post Credit Deduction Equiv. 28,900 40, ,767 *No tax credit, over threshold amount. Normally $1,000 per child.

8 Tax Reform No Changes Capital Gains and Qualified Dividends tax rates 3.8% Net Investment Income tax IRA Stretch for non spouse beneficiaries Capital gain exclusion on principal residence IRA charitable contributions over 70 ½ Deduction for student loan interest Lifetime Learning credit

9 Tax Reform Individual Other than as noted, all changes for individuals will sunset after 2025, these include: Tax bracket rates Gift and Estate tax exclusion amounts AMT Standard deductions, exemptions and child tax credit

10 Tax Reform Business Flat 21% Corporate tax rate Section 179 expense and depreciation 100% of the cost of tangible depreciable personal property Cap on Net Operating Loss [NOL], 80% Repeal of Corporate AMT Repeal of deduction for entertainment and recreation expenses, membership dues

11 Tax Reform Pass Through Business Applies to Sole Proprietors, Partnerships and S Corporations Qualified Trade or Business: all businesses, EXCEPT a prohibited specified service trade or business: Health care, accounting, actuarial, performing arts, athletics, financial services, brokerage services, consulting a business where principal asset is reputation or skill of 1 or more owners (specifically including investing, investment management, trading, dealing in securities, partnerships interests and commodities)

12 Pass Through for Specified Bus General guidelines: If taxable income is over $415,000 joint No additional tax deductions If taxable income is less than $315,000 joint 20% of qualified business income is deductible. Qualified business income for sole proprietorship is net Schedule C.

13 Pass through Sole Proprietor Gross Income 500, ,000 Business Expenses 200, ,000 Net Schedule C 300, ,000 Taxable Income , ,000 20% of Net Schedule C 60,000 60,000 Deductible Amount 60,000 0 Note: Deduction is phased out between $315,000 and $415,000 for joint filer, And $157,500 and $207,500 for single filers.

14 Pass through Sub S Same rules apply as sole prop, but active owner must pay reasonable compensation via W 2 to self. Query: what is the optimal W 2 wage and pass through income? i.e. when does 20% deductible business income equal 50% of W 2? Answer: W 2 equals total income divided by 3.5 Note: assumes reasonable compensation always above SS OASDI limit.

15 Planning Post Reform

16 Qualified Plan After Tax Contributions Current law permits voluntary after tax contributions to qualified plans Such after tax contributions are limited to the annual defined contribution limit $55K in 2018 Example: assume Uni k: Deferral $18,500 Profit Sharing $15,500 After tax contribution $21,000 which can be rolled/transferred into Roth IRA upon distribution

17 LPL Client Goals Pilot Behind every account is an investor with a goal. Trackable Financial Planning Lite Retirement only at this point Asset Allocation Enhancements Future Aggregation

18 Product Update Alternatives

19 The Wholesaler Shuffle

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21 DFA Models DFA Model Risk Return 3yr, 12/31/2017 DFA Model Risk Return 5yr, 12/31/2017 Mean Return NPA DFA MWP DFA3 Symmetry Mean Return NPA DFA MWP DFA3 Symmetry Standard Deviation Standard Deviation One year 2017 Returns: NPA DFA, 14.32%; MWP, 13.21%, Symmetry, 14.31%

22 Symmetry or Manager Select? Symmetry Structured Portfolios are available in Manager Select 100/0, 80/20, 60/40, etc. Minimum account $50,000 MS Pricing:.15% plus.20% plus.25% =.60% Symmetry Pricing:.50% plus.20% =.70% Average savings 10 to 25 basis points for larger accounts

23 Capital Gain/Loss Performance Bob Invests $10,000 into ABCDX at $10/share = 1,000 shares ABCDX share price grows to $12.50 Dividends of $1/share are reinvested so Bob now has 1,080 shares of ABCDX ($1,000 / $12.50 = 80 shares) Shares of ABCDX decrease back to $10 per share What is his capital gain/loss? $200 LOSS What is his total return? $800 GAIN (8%)

24 1099 Report Where to find BranchNet Client Works Practice Metrics

25 Upcoming Events Symmetry, Copper Door, 7 February, 12:00 Regional Training February 28 th & March 1 st April 25 th & 26 th

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