Retirement Planning – The Time Value of Money, Tax Reform, Charitable Planning and IRAs

Dear Valued Clients and Friends,

It is such an honor and privilege to serve, guide and educate our clients through all the phases of their financial planning. We do this from a holistic, comprehensive perspective and feel it is vital to know our clients and help them achieve their financial goals.  In this issue, we will focus on one of the most important concepts of investing – the beauty of time value of money and compounding. We also touch upon several changes in the new tax law and discuss ideas for charitable planning. Finally, we talk about IRAs and remind readers there is still time to make a contribution for 2017.  


The Financierge – Issue #3


  1. The Time Value of Mundi

  2. Twenty New Tax Reform Bill Changes

  3. Twelve Charitable Planning Ideas to Reduce Income Taxes in 2018

  4. Ten Things to Know About IRAs and Saving For Retirement

Appendix – The Financierge Topical Index (by Publish Date)




The pictures above show the before and after restoration pictures of Leonardo da Vinci’s Salvator Mundi painting (circa 1500). According to the Wall Street Journal, the painting was purchased in November 2017 for $450.3 million by a Saudi Arabian crown prince for a new art museum in Abu Dhabi. Just for fun, we wondered how much we would have had to invest 517 years ago to have $450.3 million today. Using an inflation rate of 3% and a market return of 7%, we calculated the answer to be an astonishing $1.28! That’s the power of time value of money and compounding interest.

The basic idea behind the time value of money is that a dollar today is worth more than a dollar in the future because of its potential for investment earnings. The basic idea behind compounding interest is that it allows your money to grow faster because the interest or dividends you earn are added to your principal so it can earn additional interest and dividends. In our client financial planning or education, we talk about investing and how the time value of money compounding work together to help clients and their families achieve goals such as paying for college, buying a home, or retiring. To illustrate the concept, a 25-year-old and 45-year-old both want to retire at age 65 with $1 million in savings. Using an inflation rate of 3% and a market return of 7%, the 25-year-old would need to invest $217,840 now, or save $10,816 per year. The 45-year-old would need to invest $466,733 now, or save $33,990 per year to reach the same goal of $1 million. As you can see, the sooner we save and invest, the more time money has to compound and create value.

To further expand on this point, check out The Bahnsen Group’s new video animation on Dividend Investing.



Here is a list of 20 notable tax reform bill impacts for clients.

  1. Lower Tax Brackets – The rates for tax brackets have been lowered to 10%, 12%, 22%, 24%, 32%, 35% and 37% based on your taxable income.
  2. Alimony Taxation Change – Alimony received is not taxable and alimony paid is not deductible for couples who sign divorce agreements after December 31, 2018.
  3. Mortgage Interest Limitation – There is no change in current mortgage interest deductions, but interest deductions are limited to new mortgages of up to $750,000. No home equity loan interest deductibility.
  4. SALT Limit – Deductions for state and local taxes (SALT) are capped at $10,000 and include property, income or sales taxes. For clients with high state income taxes, there may be an opportunity to establish non-grantor trusts, which which are taxed on where the trust is domiciled, not where the grantor lives.
  5. AMT Exemption Increases – Alternative Minimum Tax (AMT – tax system that ensures people with a lot of tax breaks still pay tax) remains, but there is an increase in phase-out levels and income that is exempt. The exemption has been raised to $70,300 for singles, and to $109,400 for married couples.
  6. Standard Deduction Nearly Doubled – For single taxpayers, the standard deduction has increased from $6,350 to $12,000; for married couples filing jointly, the standard deduction has increased from $12,700 to $24,000. For clients with ongoing charitable contributions, we will review the tax efficiency of lumping all contributions into one year through a donor advised fund and then making future payment from the fund.
  7. No Personal Exemption – The $4,050 personal exemptions are eliminated.
  8. Child and Non-dependent Increases – Child tax credit has increased to $2,000 for children under 17, with up to $1,400 refundable. The credit can be claimed by single parents who make up to $200,000, and married couples who make up to $400,000. There is a new $500 tax credit for non-child dependents, like elderly parents or adult children with disabilities.
  9. Lower Medical Expense Deductions in 2019 – Medical expenses, above 7.5% of Adjusted Gross Income (AGI), are deductible in 2017 and 2018, and then 10% of AGI thereafter.
  10. Moving Expense Deduction Gone – The deduction for moving expenses is eliminated.
  11. Miscellaneous Itemized Deductions Gone – The deduction for miscellaneous itemized deductions is eliminated.
  12. Tax Preparation Fee Deduction Gone – The deduction for tax preparation fees is eliminated.
  13. Estate and Gift Tax Exemption Doubles – The exemption for federal estate tax and also for gift tax doubles from $5.49 million to $11.2 million for single taxpayers, and $22.4 million for married couples. The annual gift exclusion amount is $15,000. The federal and estate gift tax rates remain at 40%.  These exemption amounts are scheduled to increase with inflation each year until 2025. On January 1, 2026, the exemption amounts are scheduled to revert to the 2017 levels, adjusted for inflation.
  14. 529 Savings Plan Now Include Grades K-12. In addition to college, 529 savings plans can now use up to $10,000 annually to cover the cost of sending a child to elementary or secondary school.
  15. Greater Loss Deduction Rules – Now through 2025, a loss that isn’t covered insurance can be deductible if it exceeds 10% of adjusted gross income and it is an official national disaster.
  16. Individual Healthcare Mandate Gone in 2019 – The elimination of the individual mandate on health insurance, which penalizes people who do not have health care, goes into effect in 2019.
  17. Reduced Corporate Tax Rate – The corporate tax rate has been cut from 35% to 21% starting next year.
  18. New Business Income Deduction – A new 20% business income deduction is added for pass-through entities (S-corporations, LLCs and partnerships, not C corporations) for income up to $157,000 for an individual or $315,000 for a married couple filing jointly. For individuals over the limit, we can help clients with defined benefit planning that may offer an opportunity to reduce income under the limit.
  19. Corporate AMT Gone – The alternative minimum tax for corporations has been eliminated.
  20. New Nonprofit Salary Excise Tax –  A new 21% excise tax on nonprofit employers for salaries paid above $1 million.

Twelve Charitable Planning Ideas to Reduce Income Taxes in 2018

According to National Philanthropic Trust’s charitable giving statistics, Americans gave $309 billion in 2016, mostly from individuals (72%), foundations (15%), bequests (8%), and corporations (5%). Most of those charitable dollars went to religion (32%), education (16%), human resources (12%), grant-making foundations (11%), and health (9%). One of our greatest joys is to help clients develop and blend their family philanthropic goals into their estate, tax and wealth management planning. Below are twelve charitable planning ideas to reduce income taxes in 2018.


  1. Donate Assets with Long-Term Gains Directly to a Charity – As an alternative to cash, consider donating long-term appreciated securities (stocks, mutual funds, bonds), private company stock, and other assets like real estate and life insurance. If you donate directly to the charity, you won’t pay capital gains taxes, your charitable tax deduction will be bigger, and the charity will get more money.


  1. Combine Cash with Long-Term Gain Assets – While donating appreciated securities may eliminate long-term capital gains, your deduction is limited to 30% of your adjusted gross income (AGI). However, if you combine your charitable gift with cash, you can increase your maximum charitable deduction because the limit for cash is 60% of your AGI. Remember, any unused charitable contributions can be carried forward for five years.


  1. Bunch Charitable Gifts – “Bunching” means you combine multiple years of charitable giving into a single year to maximize your tax benefit. If you don’t know what charity you want to support or you don’t want to give a charity a gift all at once, you can consider contributing to a donor-advised fund and provide the gift later.


  1. Consider a Donor-Advised Fund (DAF) – A DAF can be viewed as an investment account for public charity. You can contribute to a DAF, receive a tax deduction, your investment will grow tax-free, and you can distribute anytime to IRS-qualified charities at your discretion. As part of our Financial Concierge Service we help clients evaluate DAF strategies, provide DAF investment management, and evaluate charitable grant requests.


  1. Gift a Life Insurance Policy – you can transfer an existing life insurance policy to a charity. You will get an income tax deduction for the lower of policy’s value or cost basis, along with income tax deductions for additional cash gifts for premiums.


  1. Consider an IRA Charitable Rollover – If you are age 70.5, you can distribute up to $100,000 to an IRS-qualified charity tax-free. The distribution will also count toward your current year Required Minimum Distribution.


  1. Use a Charitable Remainder Trust (CRT) – A CRT is an irrevocable trust providing current income payments to a non-charitable beneficiary (e.g., family members) followed by payment of the remainder interest to a charity. Any capital gains tax is deferred if trust sells assets and you get an income tax deduction for the present value of remainder interest.


  1. Use a Charitable Lead Trust (CLT) – A CLT is an irrevocable trust providing current income payments to a charity followed by payment of the remainder interest to a non-charitable beneficiary (e.g., family members). You get a tax deduction for present value of income interest (if grantor trust) and gift to heirs is present value of remainder.


  1. Use a Pooled Income Fund – You can give to a charity-maintained fund and retain the income interest amount earned by the fund. Appreciated assets sold by charity may avoid capital gains tax and you may receive an income tax deduction for present value of remainder interest.


  1. Use a Charitable Gift Annuity – You can give cash or property to a charity and receives a life annuity. You may be eligible for an income tax deduction for the excess of cash/property fair market value over present value of the annuity.


  1. Gift a Remainder Interest in Personal Residences and Farms – You can gift remainder interests to a charity but retains lifetime use. You may be eligible for an income tax deduction for the present value of remainder interest.


  1. Gift a Qualified Conservation Contribution – You can give qualified real property interest to a charity solely for conservation use. You can retain the use or possession while benefiting charity. You may be eligible for an immediate income tax deduction for the value of the qualified contribution.




The deadline for filing taxes for 2017 is April 17, 2018. This means that you still have time to consider a contribution to an Individual Retirement Account (IRA) and save money for retirement. The are several distinct types of IRAs, each with eligibility restrictions based on variables such as income, age, filing status, employment status and other retirement plans. Working with your tax advisor, here are 10 things to know about IRAs and saving for retirement:


  1. Total Contribution Limits – For 2017 and 2018, total combined contributions for both a traditional and Roth IRAs cannot be more than $5,500 ($6,500 if you’re age 50 or older). Additionally, your contribution cannot be more than your taxable compensation for the year. An IRA contribution limit does not apply to rollover contributions.


  1. Qualifying Traditional IRAs Contributions are Tax Deductible – Your traditional IRA contributions may be tax-deductible. The deduction may be limited if you or your spouse is covered by a retirement plan at work and your adjusted gross income (AGI) exceeds certain levels. For 2017, if you have a retirement plan, your deduction phases out at AGI of $72,000 (single or head of household), $119,000 (married filing jointly), or $10,000 (married filing separately). For 2017, if you (and your spouse) do not have a retirement plan, you can deduct up to your contribution. If you or your spouse has a retirement plan, then your deduction phases out at AGI of $196,000 (married filing jointly), or $10,000 (married filing separately). For 2018, if you have a retirement plan, your deduction phases out at AGI of $73,000 (single or head of household), $121,000 (married filing jointly), or $10,000 (married filing separately). For 2018, if you (and your spouse) do not have a retirement plan, you can deduct up to your contribution.  If you or your spouse has a retirement plan, then your deduction phases out at AGI of $199,000 (married filing jointly), or $10,000 (married filing separately).


  1. Some IRA Contributions Stop at Age 70.5 – Regular contributions to a traditional IRA in the year you reach 70.5 and thereafter are not allowed. Roth IRA contributions are allowed at any age. SEP IRA contributions are allowed at any age as long as you have earned income.


  1. Retirement Plan Rollover to Similar Plan Types Are Allowed – You can generally rollover all retirement plan types to other similar plan types or a Roth IRA. For example, you can rollover a 401(k) to a traditional IRA or a Roth IRA. However, if you rollover from a non-Roth plan to a Roth plan, you must include the amount in income. For example, you can rollover your 401(k) to a traditional IRA with no tax consequence, but if you rollover your 401(k) to Roth IRA you have to include the rollover amount in income. If you rollover a Roth 401(k) to a Roth IRA, there is no tax consequence.


  1. A Non-Working Spouse Can Contribute to an IRA – Even if a spouse does not have income, they can open and contribute to an IRA, provided the other spouse is working and the couple files a joint federal income tax return.


  1. A Nondeductible IRA is Still Worthwhile – If you qualify for a tax-deductible contribution, you can still have an IRA. If you’re covered by a retirement savings plan at work (for example, a 401(k) or 403(b)) and your 2017 modified adjusted gross income (MAGI) exceeds certain income limits, your contribution might not be tax deductible but contributing to an IRA will still allow your money to grow tax-free until retirement. You also have the option of converting to a Roth IRA.


  1. Alimony is Income – Alimony counts as earned income and may qualify you to contribute up to the contribution limit, not to exceed your income.


  1. SEP IRA for Your Business – Whether you are self-employed or have a full-time job with a side business, you may qualify for a SEP IRA in addition to a traditional or Roth IRA. The SEP IRA is like a traditional IRA but you can contribute 25% of pretax business income up to a $54,000 limit for 2017.


  1. A Roth IRA for Children with Taxable Income – If a child has taxable earned income, you can open a Roth IRA. You can also gift to an IRA on behalf of a child or grandchild but the contribution can’t exceed the amount the child’s taxable earned income.


  1. Roth IRA Distribution Benefits – Traditional, SEP and SIMPLE IRAs require minimum distribution at age 70.5. Roth IRA contributions are generally available any time without tax or penalty, qualified withdrawals are tax-free, and there is no required minimum distributions at age 70.5.



In the next issue, we will provide some of our insights on healthcare, business and marriage planning.

We strive to provide you with the most dedicated level of service, competence, trust, and value. Please reach out if you have any questions or if there is anything we can do for you.

Sincerely yours,

Don B. Saulic, CFP® CPA
Partner, Private Wealth Management

Appendix – The Financierge Topical Index (by Publish Date)

Business Planning

Business Entity Structures and New Tax Law Considerations (Aug 20, 2018)
Five Charitable Planning Perspectives to Know Before You Sell Your Business (Aug 20, 2018)
Two Estate Planning Tips for Your Businesses (Aug 20, 2018)
Four Strategies to Preserve Your Business’ Future (Aug 20, 2018)

College Planning
Five Ideas about 529 College Savings Plans (Nov 2, 2017)

Charitable Planning
Twelve Charitable Planning Ideas to Reduce Income Taxes in 2018 (Feb 14, 2018)
Five Charitable Planning Ideas (Nov 20, 2018)

Estate Planning
Five Annual Estate Planning Tasks (Nov 2, 2017)
Four Components of a Wealth Legacy Plan (Nov 20, 2018)


Investment Planning
Dividend Stock Investing (Feb 14, 2018)

Lifestyle Planning
Six Items to Keep in Your Vault (Nov 16, 2017)
Twelve Proactive Tips to Fight Identity Theft (Nov 16, 2017)
Twelve Ideas to Guard Your Family in a Digital World (Nov 16, 2017)
Is Your Lifestyle Balanced and in SHAPE? (Nov 20, 2018)

Real Estate Planning
Four Points to Ponder Before Buying or Leasing a Home (Jun 22, 2018)
Six Considerations About Mortgages, Refinancing and Taxes (Jun 22, 2018)
Five Elements of Reverse Mortgages (Jun 22, 2018)
Four Perspectives to Consider in Deciding to Move to a State with Lower Taxes (Jun 22, 2018)

Risk Management and Insurance Planning

Starting Social Security Benefits – Ready, Set, Hold!? (Nov 2, 2017)
Nine Considerations to Maximize Social Security Benefits (Nov 2, 2017)
Lifestyles of the Affluent and Exposed (Nov 16, 2017)
Eight Benefits of Health Savings Accounts (Mar 16, 2018)
Seven Ideas for Life Insurance (Mar 16, 2018)
Six Considerations About Long-Term Care Insurance (Mar 16, 2018)

Retirement Planning

Starting Social Security Benefits – Ready, Set, Hold!? (Nov 2, 2017)
Ten Things to Know About IRAs and Saving for Retirement (Feb 14, 2018)

Tax Planning
Twenty New Tax Reform Bill Changes (Feb 14, 2018)



The Bahnsen Group is registered with HighTower Securities, LLC, member FINRA and SIPC, and with HighTower Advisors, LLC, a registered investment advisor with the SEC. Securities are offered through HighTower Securities, LLC; advisory services are offered through HighTower Advisors, LLC.

This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. The investment opportunities referenced herein may not be suitable for all investors.

All data and information reference herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as general market commentary, it does not constitute investment advice. The team and HighTower shall not in any way be liable for claims, and make no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information, or for statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date referenced. Such data and information are subject to change without notice.

Third-party links and references are provided solely to share social, cultural and educational information. Any reference in this post to any person, or organization, or activities, products, or services related to such person or organization, or any linkages from this post to the web site of another party, do not constitute or imply the endorsement, recommendation, or favoring of The Bahnsen Group or Hightower Advisors, LLC, or any of its affiliates, employees or contractors acting on their behalf. Hightower Advisors, LLC, do not guarantee the accuracy or safety of any linked site.

This document was created for informational purposes only; the opinions expressed are solely those of the team and do not represent those of HighTower Advisors, LLC, or any of its affiliates.

About the Author

Don B. Saulic

Managing Director, Partner

Don is a Partner in the team’s Private Wealth Management practice specializing in helping affluent families develop comprehensive strategies for all phases of wealth accumulation, preservation, and transfer.

He also leads our Financial Concierge Services platform of professional alliances and serves as the editor of The Financierge.

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