If you’re receiving a settlement from a life-altering event, such as personal injury, property damage, or an employment dispute, know this: you're not alone, and it is normal to ask, “What now?”

This may be the most significant sum of money you’ve ever received. But it’s more than just a windfall. It’s a crossroad. What you do next can shape your financial peace for decades to come.

At our firm, we’ve guided many families through life transitions like this one. Here are five smart, grounded steps to help you avoid common pitfalls and build a future marked by clarity, confidence, and purpose.

Step 1: Pause and Protect

Your first move? Nothing, for now. It’s normal to want to take immediate action. But when it comes to significant financial decisions, taking a beat is often the wisest choice.

What to do:

• Park the funds in a safe, highly liquid account such as FDIC-insured high-yield savings or U.S. Treasury bills.

• Avoid large purchases, gifts, or new ventures for at least 90 days.

• Take time to think, grieve, and breathe.

What to watch out for:

• FDIC insurance has limits. Coverage is capped at $250,000 per depositor, per institution. Large dollar settlements need to be spread wisely or placed in programs with extended coverage.

• Be cautious of unsolicited “investment opportunities.” Scammers often target settlement recipients.

Smart alternative:

Beyond FDIC-insured accounts, another safe option is short-term U.S. Treasury securities. They are backed by the U.S. government, give you steady access to your money, and often provide competitive yields. The interest is also tax-free at the state and local level, which makes them a reliable choice for keeping your settlement secure.

Our take: The best first step is often no step at all. Create safety and space before making decisions.

Step 2: Build a Trusted Team

You don’t have to figure this out alone and you shouldn’t. A coordinated team can help you avoid costly mistakes and make confident, informed decisions.

When you are managing a life-changing settlement, success is not only about making smart choices. It is about making coordinated choices. The best outcomes happen when professionals work together to support your full financial picture.

Who should be at your table:

• A fiduciary financial advisor to help design your long-term strategy, coordinate decisions, and ensure all the moving parts align with your goals.

• A CPA to clarify your tax liability and help reduce it when possible.

• An estate attorney to protect your assets and plan your legacy.

Why the fiduciary distinction matters:
Unlike brokers or sales-driven advisors, fiduciary financial advisors are legally and ethically obligated to put your interests first. They do not earn commissions from products. They earn trust by giving objective guidance based solely on what is best for you.

What to watch out for:

• Conflicted advice: If someone is recommending products they are also paid to sell, they are not held to a fiduciary standard.

• Lack of collaboration: A team that does not work together can create missed opportunities, inconsistent strategies, or unnecessary tax costs.

• Advice in isolation: Each professional plays a role, but without coordination important details can easily be overlooked.

Our take: A fiduciary advisor serves as your financial quarterback, bringing leadership, clarity, and coordination across your team. At our firm, we embrace that role with care and seriousness. We sit on the same side of the table as you, and every recommendation is grounded in what is best for you now and in the years ahead.

Step 3: Understand the Tax Picture

The more you keep, the more you can use for yourself, your family, and the legacy you want to build.

Not every dollar from a settlement is treated the same under the tax code. Some portions may be completely tax-free, while others could create a significant tax bill if not managed carefully. Knowing the rules up front helps you make smarter choices, avoid surprises, and keep more of your money working toward what matters most.

What to know:

• Compensation for property loss or personal injury is often not taxable

• Payments for emotional distress, lost income, or punitive damages are typically taxable

• Any investment gains after receiving the funds will be taxed

What to watch out for:

• Misclassifying different portions of the settlement, leading to avoidable taxes or penalties

• Underestimating your future tax bill, especially if you invest and grow the fund.

• Overlooking tax-smart giving strategies, such as donor-advised funds, that can lower taxes while increasing your impact

Our take:

A proactive tax strategy is not just about reducing what you owe. It is about maximizing what you keep so you can enjoy your life, provide for future generations, and give generously to the causes you care about. As fiduciary advisors, we work closely with your CPA or bring in trusted tax partners to help you make confident decisions that reflect your values and protect your wealth.

Step 4: Create a Life-Driven Financial Plan

The goal is not just to manage your money. The goal is to use it to create a life that feels meaningful, secure, and aligned with what matters most.

This settlement creates a powerful opportunity to pause and ask deeper questions:

• What does peace of mind actually look like for me?

• Where do I want to live and how do I want to live?

• How can I provide for loved ones or give generously without putting my own future at risk?

The right financial plan turns those answers into action.

What your plan should include:

• A strong emergency reserve for flexibility and resilience

• A clear approach to debt, housing, and insurance coverage

• Strategies for healthcare and long-term care needs as you age

• Defined goals for retirement income, giving, and legacy planning

What to watch out for:

• Lifestyle creep. Small upgrades can quickly become big ones, and without intention your wealth can disappear faster than you realize.

• Unspoken family expectations. Money can create tension if roles and boundaries are not clear.

• Analysis paralysis. Without a plan, it is easy to get stuck, make impulsive choices, or avoid decisions altogether.

Our take:
A thoughtful plan gives your dollars direction so they serve your values, your goals, and your future. We help clients design plans that are flexible, grounded in what matters most, and built to bring clarity and confidence to every decision.

Step 5: Invest With Intention

Once your immediate needs are secure and your goals are defined, it’s time to grow your wealth thoughtfully.

A settlement is more than a chance to invest. It is an opportunity to shape the next chapter of your life and legacy. With the right strategy, your wealth can support your lifestyle, create opportunities for the next generation, and give you the ability to be generous along the way.

What to do:

• Diversify across stocks, bonds, and other investments

• Match your strategy to your timeline, risk tolerance, and income needs

• Use tax-smart investment accounts like Roth IRAs, brokerage accounts, or 529 plans

• Stay disciplined and consistent rather than reacting to fear or headlines

What to watch out for:

• High-fee products or promises that sound too good to be true

• Concentrating too much wealth in real estate or a single business

• Making emotional investment choices (especially during market volatility)

Our take:

Investing done well is steady, strategic, and deeply personal. It is not always about chasing the highest return. It is about creating peace of mind and building a life that lasts. As fiduciary advisors, we help clients invest with intention so their money grows in line with their values, their freedom, and the legacy they want to leave.

You Have a Rare Opportunity

A settlement can mark a new beginning. With the right plan and trusted guidance, it can bring peace, purpose, and even lasting impact.

Our firm helps individuals and families navigate these transitions, whether your goal is to protect, grow, or give with intention.

If you or someone you love is receiving a settlement, we invite you to a complimentary 60-minute strategy session. Together we can design a plan that reflects your goals, tax picture, and values.

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Disclosure: This material is provided for informational and educational purposes only and should not be construed as tax, legal, or investment advice. Examples are hypothetical and for illustration purposes only; actual results will vary. Tax laws are subject to change, and their application may vary depending on individual circumstances. Clients should consult their own tax and legal advisors before making any charitable giving decisions. Advisory services offered through Human Investing, LLC, an SEC registered investment adviser.

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As a leader at your company, you are provided a comprehensive range of benefits that help achieve your financial and retirement goals. However, things can go awry at tax time. The newer Metro and Multnomah County taxes, in addition to regular Federal and Oregon taxes, are becoming an increasing burden for executives to navigate. 

By implementing a proactive forward-looking tax strategy and payment plan, company leaders have a significant opportunity to improve their financial situation, relieve stress related to taxes, and reduce unwanted April surprises!

In this article, we’ll examine a few of the biggest reasons you could get hit with an unexpected tax bill and ways to navigate it differently.

Tax hit #1: Limiting your withholdings on supplemental pay

Many sources of compensation beyond salary (such as PSP, LTIP/PSU vests, RSU vests, and stock option exercises) are taxed as “supplemental pay.” This comes with a fixed tax withholding percentage, regardless of your tax bracket or withholding elections on your base salary. For example, the fixed withholding rates set by the government on supplemental pay is 22% Federal and 8% Oregon. The reality is most executives are in a much higher income tax bracket, sometimes as much as 17% higher than the amount withheld. This discrepancy leaves a significant gap in the amount of taxes that should have been withheld versus the actual amount that was withheld.

As an example, Charlotte an executive has $50K of RSUs that vested on September 1st. With all her income sources (salary, PSP, LTIP/PSU, RSUs) her total taxable income is $400K. The taxes automatically withheld on the $50K vested RSUs would be about $15K (22% Federal + 8% Oregon). However, her total income puts her in the 35% Federal tax bracket + roughly 10% Oregon bracket. This makes the withholding on her RSUs about $7,500 short ($50K x 15% short).

To get this paid in, she could use Quarterly Estimated Tax vouchers to submit the underpaid tax to the IRS and Oregon. Or, depending on her overall tax situation, she may be able to wait and pay the balance due with her tax return in April without incurring underpayment penalties and interest – although this determination may require a tax professional to run a detailed tax projection. For many people, being hit with a large bill all at once in April may not feel great and they may opt for Quarterly Estimated Payments instead.

If Charlotte doesn’t realize that her withholding was short until she files her tax return next April, she could face yet another surprise – 7 months of underpayment interest and penalties. Depending on her overall tax picture, the IRS and Oregon may have been accruing this since September. Yet another unwanted surprise for Charlotte.

Tax hit #2: Not withholding enough (or at all) for Multnomah County’s “Preschool for All” tax

The Preschool for All tax is 1.5% on taxable income over $125,000 for individuals or $200,000 for joint filers, with an additional 1.5% on taxable income over $250,000 for individuals or $400,000 for joint filers. The rate is currently scheduled to increase by 0.8% in future years. If you live or work in Multnomah County, you are likely subject to the “Preschool for All” tax that started in 2021.

Unfortunately, your company might not use payroll withholding to cover this tax, in which case you would be responsible to fully submit this tax on your own. Multnomah County expects these payments to be received quarterly to avoid interest and penalties. This can be submitted using vouchers or paying online.

We often see the most challenges for residents of Multnomah County who travel outside the county boundaries to work for an employer that does not currently have Preschool tax withholding options. Determining how much to pay and navigating this alone can be stressful. And for any late or underpaid tax, the county is quick to send notices in the mail. To reduce this headache, we recommend finding trusted advisors or tax professionals to serve as a guide to help you navigate complexities throughout the year.

Tax hit #3: A lack of coordination on how much to withhold for the Metro tax if you and your spouse both work

The Metro Supportive Housing Services tax (a.k.a. the Homeless tax) also began in 2021. It is a 1% tax on applicable income over $125,000 for single filers or $200,000 for joint filers.  If you don’t know whether your residence or your workplace is located within the Metro, you can look up the address here: Metro Link.

The challenges described above for the Preschool tax are similar for the Metro tax. Additional issues arise for families when each spouse works at a different company, and we see this frequently because the Metro area is larger. The income threshold for this tax is based on total household income. Since the spouses’ two different employers likely do not communicate with each other, there can be significant over or under withholding of these local taxes.

For example, Nike is located within the Metro boundary. If a Nike executive has income of $400K, Nike will start to withhold Metro tax once the executive’s income for the year is over $200K. Let’s say their spouse earns $90K by working for a different company, ABC Co., located across town but still within the Metro. Since this $90K alone is under the threshold, ABC Co. does not automatically withhold Metro tax. However, we know the total household income of $490K is over the threshold, which means all of the ABC Co. income is subject to Metro tax too. You see how this can create an issue? Unless the spouse realizes this and works with ABC Co.’s HR department to turn on withholding or diligently submits quarterly payments to the Metro on their own, the family may discover a balance of tax, penalties, and interest to pay in March/April right around a spring break vacation with their kids. Not fun!

In short, if you live or work in the Metro boundaries, it is important to be aware of the withholding options that your employer provides, and to be certain you are opted in or out accordingly.

Tax hit #4: Incorrectly reporting stock transactions and the complexity that comes with it

Up to this point, we’ve discussed withholdings on your salary and benefits. What about company stock that you own and decide to sell – what can go wrong there?      

When you sell company stock (whether you’re still at the company or have moved on), it is reported to you and to the IRS by the custodian (i.e. Fidelity, Schwab, Computershare) on a Form 1099. On this form, the custodian clearly reports the sale date, quantity, sales price, and name of the company’s stock that was sold. What is not so clear is the basis – the portion of sales proceeds that is not taxable because it has already been taxed on your W-2.

If the stock was acquired as part of your employee benefits package, this information is often buried within dozens of pages in the Form 1099. And these pages can be detailed, complex and confusing to read - especially as each custodian has a different template and the layout can change from year to year. We recommend seeking the help of a professional if you are unsure about your basis or how to report it. An experienced tax preparer sees MANY of these forms each season. They know where to look to find the basis of the company stock you sell, and how to translate that information accurately onto your tax return.

Without reporting the basis, or reporting it incorrectly, your taxable income could potentially be overstated significantly and you may accidentally pay more money to the IRS than is actually due. Fixing this after your tax return has been filed can require a time consuming process of preparing an amended return and waiting for the government to return your money. If you suspect you overpaid your taxes, you can always reach out to a tax professional to review your tax return. CPAs within our firm often provide this review to clients throughout the year as part of our financial planning services. 

While tax is a complex subject, it is only a piece of your unique financial picture. Planning appropriately for taxes should be done cooperatively with other parts of your financial plan, such as cash flow, retirement and estate planning. Done right, they’ll fit together like a perfect puzzle.  

Want to minimize the tax headache? A few Actions you can take now

Action #1:  Bring in experienced tax professionals.

Tax professionals can work with you to run “tax projections” to track how much you need to pay and monitor your April balance. These tax projections can be done any time throughout the year and can be refined near year-end to give you peace of mind and limit unwanted surprises.

If you’re looking for tax savings now or in retirement, we highly recommend proactive tax planning. A professional who is well-versed in your company’s benefits can use your tax projection to provide customized strategies to minimize your tax liabilities.

Action #2:  Talk with your financial planner.

We know that for many company executives, setting aside additional tax payments from your monthly household cash flow can become stressful, especially since the amounts can be so inconsistent. If you’re feeling that stress, tell your financial planner – they’ll want to know so they can help you navigate it well and feel more confident going forward. 

One strategy we may suggest is the “Pay as You Receive” method, which calculates an estimated amount of taxes due from each type of supplemental income when it hits your bank account. Making tax payments at the time you receive the income- while you have the funds to do it- will leave your monthly cash flow separate and unaffected.

These estimated tax payments, when combined with your payroll withholding, should be equal to your anticipated tax bracket for the calendar year. This approach helps ensure that your total payment to the IRS, Oregon, Multnomah County, and Metro aligns with your overall tax obligations.

Action #3:  Find a team that has BOTH!

It is important to note that any tax payment and mitigation strategies should be part of a comprehensive financial plan that is tailored to your specific financial situation. If you’re considering a firm that can look at your full financial picture, we’d love to help. At our Lake Oswego office, our team has licensed CERTIFIED FINANCIAL PLANNER® professionals and Certified Public Accountants, and we constantly share knowledge with one another.

We’re here to talk you through local, state, and federal complexities and we want to help you get things right the first time. Our mission is to serve you faithfully and be there to guide you through your benefits packages as you advance in your career or make a move.

If you have questions about how to set up a proactive forward-looking tax strategy, please contact our team to learn more.

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Disclosures: The information provided in this communication is for informational and educational purposes only and should not be construed as investment advice, a recommendation, or an offer to buy or sell any securities. Market conditions can change at any time, and there is no assurance that any investment strategy will be successful. Investing involves risk, including the potential loss of principal. Past performance is not indicative of future results.

Diversification does not guarantee a profit or protect against a loss in declining markets. Asset allocation and portfolio strategies do not ensure a profit or guarantee against loss.

This material is not intended to provide, and should not be relied upon for, tax advice. Please consult your tax advisor regarding your specific situation.

Scenarios discussed are hypothetical and for illustrative purposes only. They do not represent actual clients or outcomes and should not be interpreted as guarantees of future results.

The opinions expressed in this communication reflect our best judgment at the time of publication and are subject to change without notice. Any references to specific securities, asset classes, or financial strategies are for illustrative purposes only and should not be considered individualized recommendations.

Human Investing is a SEC Registered Investment Adviser. Registration as an investment adviser does not imply any level of skill or training and does not constitute an endorsement by the Commission. Please consult with your financial advisor to determine the appropriateness of any investment strategy based on your individual circumstances.

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Don’t let time run out on these end-of-year tax plays. Not having a tax projection done can be a costly mistake. Besides giving you peace of mind in April, in order for you to pay the lowest percentage of taxes over your lifetime, you have to plan and utilize every opportunity. Sometimes this means paying more dollars in tax in the current year to seize and maximize that lower rate.

For Lower Income Tax Brackets

 While your income is low, it may make sense for you to realize more income now and better utilize your low tax rates. 

1. Roth 401K and Roth IRA contributions: Contributing to a Roth 401k or Roth IRA may cost you more in taxes today, but it allows those dollars to grow tax-free. If you can do this early in your career and give your retirement dollars a long time to grow, the tax savings will be enormous.

2. 0% federal tax on capital gains: Many people are unaware that the IRS actually allows for a 0% tax on capital gains (Example: Gain from sale of stock). If your taxable income is below $48,350 Single $96,700 Married-Filed-Jointly in 2025, you may want to realize additional gains this year by selling stock to take advantage of these low rates. Keep in mind you may still need to pay state & local taxes on these sales but selling at the 0% federal tax bracket is an opportunity you can’t afford to pass up.

3. Lower your tax bracket when your income is low in retirement: Sometimes this situation occurs not when you are starting your career but when you are ending it. In the years between retirement and age 73, when Required Minimum Distributions start, there are opportunities to take advantage of these low tax brackets as well.

4. Lower your tax withholdings in January: If you are getting a large refund, adjust your withholdings on your paycheck for the next year. Adjusting early in the year keeps more money in your pocket each month. Do not give the IRS an interest-free loan.

For Middle Income Tax Brackets

As you start making more money and entering higher tax brackets, this is the time to start looking for deductions. 

1. Maximize your employee benefits: Have you maximized your employee benefits such as retirement contributions (including catch-up for those age 50+, and an extra catch-up for those age 60-63), H.S.A. contributions (including catch-up for those age 55+), and other benefits? When you are a W-2 employee, the best place to look for deductions is at work. Many companies will also offer some sort of match on retirement contributions. By not putting enough or anything into your workplace retirement plan, you may be leaving money on the table.

2. Tax loss harvesting: One place you might go looking for additional deductions is your brokerage account. While no one likes to lose money on their investments, Capital losses can offset up to $3,000 of ordinary income each year. If your income is high you may want to harvest losses for two reasons:

   1. Taking losses now allows you to put off paying tax in favor of paying down the road when it might be cheaper, potentially 0% or 15% federally.

   2. To stay out of the 20% highest capital gains bracket $533,400 Single, $600,050 Married-Filed-Jointly for 2025).

3. Non-Deductible IRA contribution: If you are already doing the items above and want to put more away for retirement, you might consider funding a non-deductible IRA. You (and your spouse) can put up to $7,000 (for 2025) into an IRA each year. This puts after-tax dollars into an IRA which could later be converted to a Roth IRA, which can grow tax-free. Keep in mind that the IRS views all of your IRAs as one IRA. Any distribution or conversion must be done proportionally to your taxable and non-taxable balances. If you have taxable amounts in your IRA, you may owe tax on any conversions.

4. Raise your tax withholdings in January: If you owed a lot in April last year, it may be an indicator that you need to adjust your withholdings for the coming year or make estimated payments. The IRS requires you to pay the tax due at least quarterly. January is a good time to adjust your withholdings because you have the entire year for the changes to take effect. This means you can make the smallest change to your net pay and still yield the desired effect at year-end.

For Higher Income Tax Brackets

When you find yourself with a surplus of money, living generously may yield additional tax savings.

1. Charitable contributions using stocks: While contributing to charity generally does not save you more than you spend on your taxes, if you have the heart to give there are efficient tax strategies that can allow your donation to go further. As changes to itemized deductions have vastly limited the amount of benefit many people can get from making charitable contributions, with careful planning, there are ways you may still save big.

   1. Contributing long-term appreciated stock may allow you to gain a charitable contribution for the fair market value of the stock and never pay the capital tax from the sale.

   2. Utilizing a donor-advised fund may allow you to bunch several years of donations into a single year. This could allow you to take larger deductions over several years.

   3. If you are over age 70.5 and not itemizing your deductions it may make sense for you to donate straight out of your IRA with a Qualified Charitable Distribution. These donations get paid straight from your IRA and are not taxed.

2. $19,000 gifts to your children: If you are planning to transfer a large estate to your children upon your death it may make sense for you to utilize the annual gift limits and give each year to potentially lower taxes on your estate. These gift limits are annual and adjust with inflation. Current limits are $19,000 per year per individual. This means a husband and wife could give $19,000 each to a child for a total of $38,000. If that child is married, they could also give their child’s spouse the same amount without filing a tax return.

   To be clear, you can give all the way up to your lifetime limit in a given year without paying taxes, but giving more than $19,000 requires you to file a gift tax return and reduce your lifetime estate.

When it comes to taxes, Benjamin Franklin said it best when he said “failing to plan is planning to fail”. If you have not done so already, get your tax plan going before the end of the year. 

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Disclosures: Human Investing is a SEC Registered Investment Adviser. Registration as an investment adviser does not imply any level of skill or training and does not constitute an endorsement by the Commission. Please consult with your financial advisor to determine the appropriateness of any investment strategy based on your individual circumstances.

This material is not intended to provide, and should not be relied upon for, tax advice. Please consult your tax advisor regarding your specific situation.

The information provided in this communication is for informational and educational purposes only and should not be construed as investment advice, a recommendation, or an offer to buy or sell any securities. Market conditions can change at any time, and there is no assurance that any investment strategy will be successful. Investing involves risk, including the potential loss of principal. Past performance is not indicative of future results.

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If you are looking for the best way to save for your kids’ future college expenses there isn’t necessarily a “one size fits all” solution. In fact there are a number of choices available, each with their own list of benefits and features. The 529 plan is probably the most common and well known option. Similar to a Roth IRA, a 529 plan offers tax-free growth as well as tax free withdrawals as long as the money is used for higher education expenses. This isn’t limited to major 4-year universities either. Most 2-year schools, community colleges, and trade schools qualify under the program.

In addition to tax free growth and tax free withdrawals, if you use your home-state sponsored plan (such as the Oregon College Savings Plan), your contributions may be deductible against your state income tax. These features make the 529 plan very attractive for those who want to maximize their savings for college.

More flexibility than before

One of the traditional drawbacks of a 529 plan was the limited flexibility in how the funds could be used. Previously, if a child did not attend college or received a scholarship, parents might have faced a 10% penalty and income tax on earnings when withdrawing the money for non-qualified expenses. However, recent changes have made 529 plans more flexible. For example, up to $10,000 per year can now be used for K–12 tuition, and up to $10,000 (lifetime) can be used to repay student loans. Most notably, starting in 2024, unused 529 funds—up to $35,000—can be rolled over into a Roth IRA for the beneficiary, provided certain conditions are met. These changes make 529 plans a more versatile option, though parents who want maximum flexibility for non-education-related expenses may still consider alternative methods.

For ultimate flexibility a parent can use a traditional brokerage account and invest the money for growth just like a 529 plan. With this option, you give up the tax benefits of the 529, but there are no restrictions on how the money is used and for whom. If the money is managed in a tax efficient manner, this can be a great alternative for many families.

Alternate saving options

One more option is a UTMA or UGMA account. These stand for Uniform Transfer to Minors Act and Uniform Gift to Minors Act. These accounts offer a middle ground between the two prior choices. On one hand, the money doesn’t have to be used for college expenses, but the account does have to be used for the benefit of the child only. There are also some tax benefits to these accounts as some of the growth may be taxed at the child’s tax rate, which is typically lower than the parent’s rate.

In summary, if you want the best plan to purely maximize college savings, a 529 is the best option. If you still want to provide savings for your kids, but aren’t 100% certain if you’ll need access to those funds down the road, then the other choices can be managed in a way to provide a very similar benefit, while providing additional flexibility.

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As the person who manages most of the financial decisions in your household, it's natural to want to ensure your spouse is financially secure if you're no longer around. The financial burden on a widow can be overwhelming, especially with the lesser-known tax implications that often follow the death of a spouse. By planning ahead, you can safeguard your spouse from unnecessary financial stress.

Taking a few proactive steps now can help shield your spouse from these challenges and give them peace of mind. This guide will walk you through the financial implications of losing a spouse and what you can do today to ensure you preserve your assets for their well-being.

There are two common tax shocks you want to get ahead of:

Tax shock #1: The “survivor's penalty”

After a spouse dies, the widow is often left facing what’s called the "survivor’s penalty," which refers to higher taxes that result from a change in filing status. While you may currently file taxes jointly as a married couple, your spouse would be required to file as a single taxpayer after your death. This change can increase their tax bill substantially.

Here’s why this matters:

• Higher Marginal Tax Brackets: After your passing, your spouse’s income could fall into a higher tax bracket due to the narrower brackets for single filers compared to married couples.

• Reduced Standard Deduction: In 2024, the standard deduction for married couples filing jointly will be $29,200, but for single filers, it will be just $14,600. This reduction will increase the amount of income subject to taxes.

Looking ahead, it’s important to note that individual tax brackets are set to revert to pre-2018 levels in 2026, further increasing the tax burden on your spouse if you’re no longer here.

Tax shock #2: Hefty taxes on IRA distributions

If your spouse inherits your retirement accounts, such as an IRA, they’ll also face higher taxes due to Required Minimum Distributions (RMDs). These distributions are considered ordinary income, and combined with their new single filing status, could push them into an even higher tax bracket! The larger your IRA, the bigger this tax burden becomes.

What may seem like a well-planned nest egg now could become a source of financial strain later on due to taxes. By understanding this, you can take steps now to lessen the impact on your spouse’s financial future.

Firsthand example from a retired couple

When Spouse #1 and Spouse #2 file jointly, both receive Social Security and must take Required Minimum Distributions (RMDs) from their retirement accounts. Let’s look at their income and tax bill while filing as Married Filing Jointly (MFJ):

Now, if Spouse #1 passes, Spouse #2 becomes the sole taxpayer, facing a shift to the Single filing status. Spouse #2 is still required to take the same RMD amount as the beneficiary of the retirement accounts and claims Spouse #1’s higher Social Security benefit under the survivor benefit rules. However, Spouse #2 cannot receive both Social Security payments, so Spouse 2’s income is reduced. Here’s what their tax situation would look like:

Despite an almost 16% drop in income, Spouse #2's tax bill increases by over 30%, showing the impact of the survivor’s penalty on income and tax liability.

This example highlights why it’s essential to plan ahead to help lessen the financial burden on surviving spouses.

Four strategies to protect your spouse from a heavy tax burden

Fortunately, there are several strategies you can use to reduce the tax burden on your spouse in the future:

1. Complete Tax Projections: To best plan for the future and make calculated decisions, it’s necessary to understand your expected lifetime tax bill. A comprehensive tax projection will identify your current and future tax rates, potential gaps, and overall lifetime tax obligations. This helps you make informed decisions today.

2. Partial Roth IRA Conversions: Converting part of your traditional IRA into a Roth IRA over time can help reduce the tax impact on your spouse later. While you’ll pay taxes on the conversion now, the Roth IRA’s future growth will be tax-free, meaning less taxable income for your spouse when they inherit it.

3. Take Advantage of the Step-Up in Basis: For non-retirement investments, your spouse can benefit from a "step-up in basis." This allows the cost basis of assets to reset to their value at the time of your death, potentially eliminating capital gains taxes if they were to sell those assets. Understanding this advantage can save your spouse from an unexpected tax bill down the road.

4. Naming Non-Spouse Beneficiaries: Another option to reduce taxes is to name non-spouse beneficiaries for some of your retirement accounts, such as your children and grandchildren. While this can lessen the tax burden for your spouse, it’s essential that these non-spouse beneficiaries understand the new withdrawal rules set by the SECURE Act. This law requires that non-spouse beneficiaries fully distribute inherited IRA funds within 10 years, which could trigger substantial tax liabilities for them if not carefully planned. Additionally, consider adding a qualified charity as a beneficiary to your IRA for a tax-free transfer gift.

You can start planning ahead with your spouse now

Planning for your spouse's financial future can be an impactful gift. While it may be uncomfortable to think about what happens if you're no longer here, taking proactive steps now will ease your spouse’s transition during a difficult time. Here are a few key actions to consider:

Have Regular Financial Discussions: Make sure your spouse understands your financial plan, knows how to manage accounts, and is familiar with where to find important documents.

Work with a Fiduciary Financial Advisor: A financial advisor can help you develop a plan tailored to your family’s situation. By understanding your overall financial situation, an advisor can provide guidance now and assist your spouse when you're no longer there. They can also help with tax projections, Roth conversions, beneficiary updates, and staying ahead of tax law changes.

Create a Clear, Organized Estate Plan: Ensure your estate plan is up to date, including wills, trusts, health care directives, power of attorney, and beneficiary designations. This will help prevent unnecessary complications for your spouse during an already challenging time.

Be Proactive About Taxes: By planning for your spouse’s future tax obligations, you can reduce the “survivor’s penalty” and give your spouse more financial security.

You’ve worked hard to provide for your family, and planning for your spouse’s financial future if something happens to you is a vital part of that legacy. While it may seem difficult to know the "right" time to prepare, we can't predict the future. Whether you're already in retirement or facing a serious diagnosis, projecting out scenarios can make all the difference for your spouse’s security.

Don’t wait until it’s too late—start planning now to protect your loved one from unnecessary financial strain.

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Bonds are a fundamental piece of most investment portfolios, and the basics of bonds can confound even seasoned investors. When testing financial literacy through 5 core questions, bonds are frequently the topic that most commonly trips people up (try the quiz here). We want to make it easier for you to grasp the basics of bonds, whether you're new to investing or just want a quick review.

lend money to companies or the government

At its core, a bond is a type of loan. It's usually issued by governments or companies that need to borrow money. When you buy a bond, you're essentially lending money to the issuer. As the bondholder, you receive interest payments from the borrower.

Bonds are generally considered less risky than stocks, because if the borrower faces bankruptcy bondholders get paid before stockholders. However, the return on bonds is typically lower than stocks, and there's a risk that the borrower might not be able to pay back the debt.

key terms related to getting paid back

The principal value is the amount being borrowed by the issuer. Typically bonds trade in $1,000 increments.

The maturity date is the date the bond will return the principal value (aka face value) to bondholders.

You also receive interest when you lend money. The interest received is usually based on the Coupon rate, which is the interest payments paid to bondholders. Typically as a percentage of face value paid annually. For example, if you have $1,000 of a bond with a coupon rate of 5%, you will receive $50 in interest payments every year until the bond matures. Upon maturity, you will get the $1,000 principal back.

Credit rating is like a credit score for a government or company, indicating how likely they are to make payments. A higher credit rating indicates a higher chance of the issuer making payments.

Imagine if Disney needed to raise money via bonds

When a bond is first issued, the issuer sets the terms like the coupon rate and maturity date. The reality is that interest rates and credit risk (how likely the issuer is to payoff the bond) change after the bond is issued, which causes the bond price to fluctuate.

Imagine if Disney issues bonds paying 5% interest, the current market rate.

You purchase a bond for $1,000, and you get a $50 coupon payment from Mickey Mouse every year until the bond matures.

If interest rates go up, this isn’t good for your bondS

If interest rates rise next year to say 8%, and Disney issues new bonds, they will probably issue them at the new interest rate.

Your neighbor Laura decides to buy $1,000 of the new bonds, and she gets an $80 coupon from Mickey Mouse every year.

Because interest rates rose, the value of your bond paying $50/year goes down in value, less than the $1,000 you purchased it for because the $1,000 could buy Laura’s bond paying $80/month.

The reverse if also true. If rates had fallen to 3%, Laura’s bond would only pay her $30, and your $50/month bond would be worth more than $1,000. This is why when interest rates rise, bond prices fall.

Think of a teeter-totter: When one side’s down (interest rates), the other side must go up (bond prices).

When your bond is trading below $1,000, it is trading at a discount, typically with a coupon rate lower than current interest rates. If your bond is trading above $1,000 it is trading at a premium, typically with a coupon rate higher than current interest rates.

Timing bond returns

Remember that the bond market is full of smart people looking to try and make money. As a result, all similar bonds are priced so they provide similar returns. For example, if you see a 2 year bond with a 5% coupon, and a 2 year bond with a 3% coupon, the price of the 3% coupon bond will be so much lower than the 5% coupon bond and you will end up making just as much money either way. This is called the yield, or coupon + price return on a bond. Keep in mind if there are differences in bonds (i.e. higher or lower credit risk, time to maturity, other terms of the loan), that can cause differences in yield too.

When should I own bonds?

Long term equities tend to produce higher returns than bonds. However, these equity returns involve higher risk, and some people can’t afford to wait to make their money back. Bonds are an important ballast to ensure you can sleep at night, keeping a portion of your portfolio safe. Bonds can also provide a reliable source of cash flow that can be more reliable than stock dividends.

Finding the right bond for you

Like stocks, there are different bonds. Sovereign bonds (issued by governments) tend to be less risky, providing lower returns because of the lower credit risk. On the other hand, corporate bonds (issued by companies) provide higher returns, with an increased danger of losses due to companies going bankrupt.

At Human Investing, we provide individual treasury ladders for clients. US Treasuries are broadly considered one of the safest investments in the world. By owning individual bonds, you know you will get your principal returned upon maturity. The liquidity of treasuries also allows for flexibility if funds are needed sooner than anticipated.

Alternatively bond funds can be an excellent solution for clients, particularly those seeking growth. By investing in a bond fund, you gain exposure to a diversified range of bonds, enabling you to take on credit risk more effectively than as an individual investor. Much like owning a stock index fund, owning so many different companies debt means even if a few go bankrupt, they are such a small piece of your portfolio you will be okay.

Still have questions, or want to talk to an advisor? Reach out to us at hi@humaninvesting.com, or 503-905-3100.

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All too often generations of students stumble through the college planning process. With college costs on the perpetual rise, it is critical to start the planning process early.

Whether you are a beginner to the college planning journey or refining an existing strategy, here’s a visual guide of some critical to-dos for students and impactful strategies for parents depending on your unique situation.

The FAFSA is a financial unlock for college students

The FAFSA is an application for federal student aid such as federal grants, work-study funds, and loans. It’s the largest source of aid to help you pay for college or career school. To qualify, the FAFSA considers the impact of income and assets from January 1 of your sophomore year of high school until December 31 of your junior year of college (assuming a student goes straight from high school to college). For a high school senior filling out the FAFSA in 2023 and graduating in the spring of 2024, you are looking at your prior-prior year’s tax return in 2021.

The FAFSA application window opens as early as October 1st and closes by June 30th of the year you receive aid (depending on the institution’s deadline). However, in 2023, FAFSA will not be available until sometime in December due to the FAFSA Simplification Act, reshaping the entire system. Details about this significant reform can be found in this article.

Follow our yearly timeline to make things a little less stressful

For high school students planning ahead for college, we’ve summarized the major considerations and to-do items. Download the PDF here to print and hang on your fridge.

We can help with education planning

College involves time, money, and emotions. By dedicating effort, you will spare yourself unnecessary stress later. Amidst all the school visits, tests, test planning, be deliberate and have a plan. If you have any questions or would like to speak with one of our advisors, please reach out to me here.

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In today's challenging real estate market, prospective homebuyers face stiff competition and rising costs. However, there are creative ways to navigate these hurdles and secure your dream home, second home, or investment property. Here are nine strategies to consider, that can make a significant difference in your home-buying journey:

1. Seller Concessions

Don't hesitate to ask sellers for concessions to help cover your closing costs and escrow reserves. This can ease your financial burden during the transaction.

2. Borrow From Equity

If you own a home, consider tapping into its equity to fund your down payment and closing costs. Options like refinancing or taking out a home equity loan can provide the necessary funds.

3. Escalation Clauses

Work closely with your realtor to include an escalation clause in your offer. This can help your bid stand out in multiple offer situations by automatically increasing your offer amount to surpass competing offers.

4. Buying Points

Discuss the possibility of buying points with your lender. This upfront investment can reduce your interest rate and lower your monthly principal and interest payments over the life of your mortgage.

5. Rent-Back Options

Negotiate a rent-back option with the seller. This arrangement allows you to stay in your current residence for a period after closing, giving you more time to move.

6. 401k Loans

Consider taking out a loan against your 401k for your down payment and closing costs. Be sure to understand the terms and implications before proceeding.

7. Low-Down Payment Programs

First-time homebuyers should explore no-down payment and low-down payment programs. Many government-backed loans and assistance programs can help reduce your upfront costs.

8. Credit Union Referrals

Reach out to your credit union for real estate broker referrals. Working with an experienced and trustworthy real estate agent can be invaluable in navigating a competitive market.

9. Gift Funds or Equity

Explore the possibility of using gift funds or gift equity from family members to cover your down payment. Ensure you meet the lender's requirements for documenting these funds.

Be creative and resourceful

In conclusion, purchasing a home in a challenging market requires creativity and strategic thinking. By leveraging these approaches, you can enhance your chances of securing your purchase while managing the financial aspects of the transaction. Stay informed, work with experienced professionals, and be bold while exploring these options to make your home-buying journey successful.

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A much needed update for families

The Free Application for Federal Student Aid (FAFSA) Simplification Act of 2021 was passed by Congress for many reasons. For starters, the calculation was originally defined over four decades ago in 1972 and is in some need of updating. According to the National College Attainment Network (NCAN), only 61% of seniors applied for aid in 2017 and 54% in 2021.

Some consider COVID to be the main culprit for this sudden drop, but the complexity of the form is the other main issue. Currently, students are required to answer 100+ questions depending on their family's income level. As of now the new FAFSA form changes are set to be released in December 2023 and students and parents alike need to be aware of the specific aspects that will apply in the 2024-2025 academic year that may impact aid eligibility depending on their family situation.

What’s changing and why it matters

1. EFC (Expected Family Contribution) replaced with Student Aid Index (SAI)

Short answer: Fairer access to funds for lower-income households.

One of the more obvious changes was renaming the EFC to the SAI. The goal was to not only reduce the confusion around the actual costs of college and what families are responsible for paying but also ensure access to Federal Student Aid programs including Direct Student Loans, Parent PLUS Loans, Work-Study programs, and even Pell Grants for low-income households. This number can be negative with maximum Pell Grants awards giving a student up to -$1,500 in money back. Time will tell but the largest impact will fall on middle to upper income families who will no longer be able to divide the number of college students in the household that are currently in college. For example, a family that could pay $40k/year could split the aid evenly between the number of students in college at the time. They no longer have this luxury and will see a reduction in aid.

2. Custodial parent status changes

Short answer: For non-married couples, the parent who ultimately claims the child as their dependent on their tax return will submit the FAFSA.

Currently, the FAFSA only collects income and asset data from the parent a student lives with. In cases of divorced, separated, or non-married couples who reside together starting in 2024-2025 school year, the SAI calculation factors in the parent who provides the greatest financial support. In cases of divorce and separation starting in 2023 the SAI calculation will only require the parent who provides the majority of “support” to fill out the FAFSA. One household might pay the child support but the other pays for the mortgage, groceries, and sports clubs. The implications of this decision can be significant.

3. Formula changes

Short answer: Students can qualify for more awards.

As with the SAI calculation, the number of students a family has in school is no longer a factor for Pell Grant eligibility. By completing the FAFSA, you are considered for the maximum amount of Pell grants first (based on number of people in your household) and your AGI (Adjusted Gross Income) compared to the FPL (Federal Poverty Line). If not eligible, your maximum Pell Grant amount will be subtracted by the SAI. Finally, you will still be considered for a minimum Pell Grant if no award is given. These other factors in the formula for aid are listed in no order but should be noted for your situation.

The student income protection allowance threshold was raised from $6,800 to $9,400.

• Businesses and farms that employ 100 or more employees will be considered an asset going forward

• Capital Gains from the sale of investments will be considered income on the FAFSA

• Child support received is now reported with assets NOT income

4. Student income from outside sources

Short answer: A student’s financial aid won’t be penalized for withdrawing 529 funds early.

Currently students must report gifts or distributions from a 529 owned by a non-parent (e.g. grandparents or other family members) or non-custodial parent if the student's parents are divorced. Due to the FAFSA’s prior income year rules, a student who needed access to those funds before Jan. 1 of their sophomore year of college would be penalized in the formula for the withdrawal. Now they are completely removed from the aid formula calculation.

5. New student allowances for the cost of attendance

Short answer: FAFSA will cover more day to day student expenses.

Although these are smaller changes, college students alike must not overlook these valuable new allowances that the FAFSA will allow students to claim for ancillary items. Not only is there a small allowance for personal expenses if a student works part-time but a personal computer purchase with no enrollment status requirement. You can even have an allowance for transportation between home, work, and school. More details can be found here.

Proactive financial aid resources to guide your family

For a current or future college student, utilize the free Student Aid Estimator.

If these changes make need-based options harder to attain, look for colleges that offer merit scholarships. This does not mean forgoing the FAFSA completely but intentionally seeking out Merit scholarships at specific institutions. This process, known as Early Action, is detailed in this article with a list of colleges that offer Merit Aid. We recommend starting this process early as many colleges recruit students as early as late spring of your child's junior year!

Finally, contact financial aid offices to see if they will be awarding institutional dollars based on the current formula not connected to the EFC/SAI numbers.

We can help with education planning

The FAFSA is changing for better or for worse and will affect how parents and students think about college for years to come. If it would be helpful to consult a team of credentialed advisors with expertise in college planning, schedule a call here.

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Two ways to approach low-risk investments

When considering safe investment options, two popular choices that often come to mind are FDIC-insured CDs (Certificates of Deposit) and US Treasuries. While both offer relatively low-risk investment opportunities, there are some critical differences between the two that investors should be aware of.

FDIC-insured CDs are certificates issued by banks and credit unions that offer a guaranteed rate of return for a specified period. The Federal Deposit Insurance Corporation (FDIC) insures CDs up to $250,000 per depositor per bank, protecting against bank failure. In contrast, US Treasuries are debt securities issued by the US government to finance its operations. They are generally considered one of the safest investments available because the full faith and credit of the US government back them.

One key difference between the two is their liquidity. CDs have fixed terms ranging from a few months to several years, and if you need to withdraw funds before the maturity date, you may be subject to penalties. On the other hand, US Treasuries can be bought and sold in the secondary market and can be liquidated easily, making them a more flexible option.

Another difference is the level of risk. While both investments are considered safe, FDIC-insured CDs carry some risk due to the possibility of bank failure. While the FDIC provides insurance protection, there is always a small chance that a bank may fail, and investors may not receive their full investment amount. On the other hand, US Treasuries are backed by the US government and are considered virtually risk-free.

When it comes to returns, FDIC-insured CDs offer fixed interest rates that are lower than the returns available through US Treasuries. US Treasuries offer a range of maturities and yields determined by market demand, with longer-term securities offering higher yields.

In terms of taxes, both FDIC-insured CDs and US Treasuries are subject to federal income tax, but US Treasuries are exempt from state and local taxes. Additionally, you may be subject to capital gains tax if you sell US Treasuries for more than their purchase price.

Risks of Return on Investment: CDs

It's important to note that the FDIC receives no funding from taxpayers. Instead, it is funded by insurance premiums paid by banks and thrift institutions participating in the program. These premiums are based on the number of insured deposits each institution holds and the risk they pose to the insurance fund. In case of bank failure, the FDIC uses these funds to reimburse depositors for their insured deposits up to the $250,000 limit. This funding system helps ensure the banking system's stability and integrity while protecting depositors from loss.

While the FDIC insurance pool can become insolvent, it is highly unlikely. The FDIC has many safeguards to prevent insolvency, and its record of accomplishment in managing bank failures has been quite successful.

Firstly, as mentioned earlier, the FDIC collects insurance premiums from participating banks and thrift institutions. These premiums are based on the number of insured deposits each institution holds and the risk they pose to the insurance fund. The FDIC also has the authority to increase premiums to maintain the insurance fund's solvency.

Secondly, the FDIC has the ability to sell the assets and liabilities of a failed bank to another institution, thereby minimizing the cost of the failure of the insurance fund. This process, known as a purchase and assumption transaction, allows the acquiring institution to take over the failed bank’s deposits and assume its liabilities. At the same time, the FDIC pays out the insured deposits.

Finally, if the insurance fund were to become insolvent, the FDIC would have access to a line of credit with the US Treasury to cover any losses. The FDIC can also assess additional premiums on insured institutions to replenish the insurance fund.

It is worth noting that while the FDIC has never become insolvent since its creation in 1933, it has come close to doing so during times of economic stress, such as the savings and loan crisis in the 1980s. However, the FDIC's ability to manage these crises effectively and prevent widespread bank failures has helped to maintain public confidence in the banking system and the FDIC insurance program.

Risk of Return on Investment: Treasuries

If the United States were to become insolvent, it could have profound implications for US Treasuries, as the full faith and credit of the US government backs them. The creditworthiness of the US government is a key factor in determining the value of US Treasuries. Default or insolvency could significantly decrease demand for US Treasuries, resulting in a sharp rise in interest rates.

In addition, if the US were to become insolvent, it could lead to a global financial crisis, as domestic and foreign investors widely hold US Treasuries. A default could lead to a loss of confidence in the US government's ability to manage its finances, which could cause investors to sell off their US Treasury holdings, leading to a domino effect throughout the financial system.

However, it is important to note that the likelihood of the US becoming insolvent is extremely low because the US dollar is the world's reserve currency, and the US government can print its currency. This gives the government greater flexibility to manage its debt than other countries.

Furthermore, the US has a long history of managing its debt and has never defaulted on its sovereign debt. Even during times of economic stress, such as the Great Recession of 2008, the US government has been able to maintain its creditworthiness and continue to issue debt.

Overall, while there are risks associated with US Treasuries in the event of a US government insolvency, the likelihood of this scenario occurring is considered low. US Treasuries are still widely regarded as one of the safest investments in the world.

Implications of Printing Currency: A Double-edged Sword

The implications of the US printing more currency are complex and depend on a range of factors, including the current state of the economy, inflation rates, and global economic conditions.

On the one hand, increasing the money supply can help stimulate economic growth by making more money available for borrowing and spending. This can lead to increased investment and consumption, driving economic activity and creating jobs.

However, printing too much money can also lead to inflation, as the increased money supply can cause prices to rise. Inflation can erode the currency’s purchasing power and decrease consumer confidence and economic stability.

Furthermore, printing more currency can also lead to a depreciation of the currency's value relative to other currencies. This can negatively affect international trade, as a weaker currency can make imports more expensive and exports cheaper, potentially leading to a trade deficit.

Overall, the decision to print more currency should be carefully considered, considering a range of economic factors. While increasing the money supply can help stimulate economic growth, it is essential to strike a balance between promoting growth and maintaining economic stability and confidence in the currency.

What’s Your Timetable?

In conclusion, both FDIC-insured CDs and US Treasuries offer low-risk investment opportunities, but there are some key differences between the two that investors should consider. While CDs offer fixed returns and are insured by the FDIC, they are less liquid and carry some risk due to the possibility of bank failure. US Treasuries, on the other hand, offer higher returns, are virtually risk-free, and are more liquid. Ultimately, the choice between the two will depend on an investor's financial goals, risk tolerance, and investment horizon.

Authors Note: This article was written using prompts in ChatGPT. (2023, May 8). The author has independently verified the accuracy of the responses. The author edited and formatted responses from the prompts for clarity.

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The cost of education, especially 4-year accredited university programs, continues to rise. The graphic below shows the average annual cost of college nationwide from 1980-2021 far outpacing the maximum Federal Pell Grants offered over the same time period. 

If there is an ability to pre-fund college, in whole or part, it will have lasting financial implications. Funding college early at the birth of a child or grandchild to a college savings account could reduce the future funding liability by six figures. 

In this article, we will discuss some ways you can start saving for your child’s education.

The most popular option, the 529 Savings Plan

A 529 College Savings Plan is one of the most popular options when saving for college. Not only does the money you contribute to a 529 plan grow tax-free but any distributions used for qualifying education expenses (tuition, room & board, books, computer, etc.), are tax-free as well. In the past, qualified expenses were limited to just tuition and boarding but recently the government has expanded this list. Beneficiaries of a 529 plan can also use the money to pay for trade school, community college, or even a 3-month certificate program.  

Oregon has a state-sponsored 529 Plan that allows residents to receive tax benefits for contributions they make to a plan in the state. This gives you a triple-tax benefit. Contributions to fund the account have a tax benefit, growth is tax-free, and qualified expenses are tax-free. There are also private plans that qualify under Oregon-state law. As of 2023, contributors can receive up to $300 in tax credits depending on their filing status and household income. As of 2023, families can contribute up to $17,000 annually in a 529 account. Anything after that is considered a “taxable gift” and subject to gift tax laws.  

Another feature about 529s starting in 2024 and beyond is that any leftover money up to a lifetime amount of $35,000 can be rolled over into the beneficiary’s Roth IRA.. For example, let’s look at two parents who invested $50,000 into a 529. Their child received a full scholarship to the college of their choice. The child ends up only spending $10,000 to cover other expenses during their time in college. That student can then roll over a lifetime amount of $35,000 into their Roth IRA account, as long as they have earned income and the 529 account has been established for 15 years.  

Coverdell ESAs act very similarly to 529 plans due to the withdrawals being tax-free for qualifying expenses. However, contributions are limited to $2,000 per child annually and are only available to families below certain income thresholds. 

Special accounts: Uniform Gifts TO Minors Acts (UGMA) or Uniform Transfers to Minors Acts (UTMA)

UGMA or UTMA accounts can help you save for college but aren’t just reserved for education. These accounts are savings accounts that are controlled by a parent or guardian, known as a “custodian.” You can gift up to $17,000 per year (as of 2023) in assets that are held in a custodial account until the child turns the age of majority (Age 18 or 21 depending on the state). In Oregon, the dependent cannot take over the account until they are 21.  

The custodian of the account can use this money only for the benefit of the minor to pay for things like food, education, and living situations. 

Pre-pay for college tuition and tuition discounts  

Unfortunately, in Oregon, there is no State-sponsored pre-payment plan for college tuition. There may be some private ones, but they are expensive. Some people do this in other states to pay for the full tuition during the current year rather than wait 17-18 years when prices go up even more. For your reference, here are states that offer pre-payment programs.

There is also a program known as the State and Regional College Tuition Discounts. Oregon has several schools that are members of the Western Interstate Commission for Higher Education.  

For more information about this make sure to research the WICHE site and Oregon’s student aid site.

Alternatives to college that can fast track career development

Despite the rising costs of college, there are other options to consider. College is not for everyone and you may decide not to send your student to college right away if you cannot afford to do so.  

Many high-paying and rewarding career paths do not involve a college degree like: 

• Computer programming and coding 

• Loan officers 

• Pilots 

• Plant operators and managers 

• Graphic designers 

• Trades like plumbers, welders, carpenters, farmers, etc. 

• Sales reps  

• Business owners and managers 

Community colleges, trade schools, and certificate programs are a fraction of the cost of a 4-year college program and in most cases pay well with little to no debt. Plus, 529 Plans cover these types of education programs too (certain restrictions may apply).  

Some 17-year-olds may not know what they want to do yet. They can work a job, apprentice under an expert, or even start their own business and find their passion before committing to a major program in college.  

If you need more advice, financial planners and advisors can assist you with planning for your student’s future. These laws vary from state to state so talking with a team of experts who are knowledgeable in this area is a wise choice.  

If you are looking to hire an advisor, please connect with us.

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A newly passed bill known as Secure Act 2.0 will change how retirees withdraw from their retirement nest eggs. This fundamental change increases the age at which investors must take money from their retirement accounts, bringing about some impactful financial planning opportunities.

What is an RMD?

Once an investor reaches a specific age, they must withdraw a required minimum distribution (RMD) from their retirement account, such as an IRA or 401(k). The RMD amount is determined by the account holder's age and account balance at the end of the previous year. The Internal Revenue Service (IRS) requires RMDs to ensure account holders pay taxes on their retirement savings. RMDs, therefore, can be taxed on both federal and state taxes.

After reaching their RMD age, account holders must begin taking withdrawals from retirement accounts by April 1. Each subsequent year, RMDs must be taken by December 31st of that same year. The IRS may levy a sizable penalty for failure to take the mandatory distribution.

Good news, RMDs will be delayed by a year

A notable update from Secure Act 2.0 is the delay of RMDs. RMDs will start at age 73 instead of 72 for those born in 1951-1959. For those born in 1960 or later, RMDs will be delayed even further to age 75.

For those who turn 72 in 2023, you will not need to start your RMDs this year. Your first RMD can either be taken by December 31, 2024 or delayed until April 1, 2025.

There is no impact on a retiree if they have already started taking their RMDs or need their IRA to cover their cost of living. For others, who only take RMDs because they are required to, this significant modification to the RMD age provides additional retirement planning opportunities.

Retirement Planning opportunities

There will be more time for growth.

The new RMD regulation will give retirees a simple yet powerful benefit, more time for compounding growth. As the billionaire investor Charlie Munger states, “The first rule of compounding is to never interrupt it unnecessarily.”

This benefit must be highlighted, especially after a year of market losses.

An 8% return on a million-dollar IRA is $80,000. Additional returns undisturbed by an unnecessary RMD can have a snowball effect, providing an exponential lifetime benefit.

A longer window before RMDs can allow for additional planning and time, the essential ingredients in building wealth.  

QCDs can still be maximized.

Amidst the RMD age adjustment, the age at which account holders can use their IRAs to make Qualified Charitable Contributions (QCDs) was untouched. Thus, preserving one of the most powerful tax-saving strategies available to charitably inclined retirees 70.5 and older.

A QCD is a tax-free transfer of funds from an individual's IRA directly to an IRS-recognized charity. This charitable distribution allows taxpayers to avoid paying taxes on the withdrawn funds.

Retiree “Gap Years” are extended.

"Gap Years" are the years that occur between a person's retirement and the beginning of their RMDs. These Gap Years are often the years with the lowest taxable incomes in a person's adult life. As a result, they frequently serve as ideal years for accelerating income that would otherwise be taxable in a subsequent, higher-income year. The Secure Act 2.0's changes will give additional time for Tax Bracket optimization strategies such as Roth Conversions and Capital Gain Realization to reduce an investor's lifetime tax bill.

You may be pushed into a higher tax bracket in your later years.

Like all financial planning strategies, there is no one-size fits. The unanticipated pitfall of postponing RMDs can lead to more significant withdrawals in subsequent years when RMDs do start. An unexpected boost in income from RMDs might push you into a much higher tax bracket, phase you out of a tax credit, or trigger a surtax. Taking the time to understand the applicable tax implications are crucial when building a tax-sensitive retirement income plan.

This is a great time to reevaluate your retirement plan

The retirement system has undergone numerous changes due to Secure Act 2.0's policy reforms, adding to the difficulty of retirement planning. Recognizing the planning opportunities and risks that relate to you and your financial plan is essential.

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