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Tax Rates and Brackets

Tax Rates and Brackets

This is meant to illustrate how confidence wealth can help with financial planning.

Tax Rates

Income Taxes

The United States’ tax system is progressive, which means that the greater your income the greater the tax that you pay on it. Many reasons exist for why your taxes are structured in this way. Essentially, the U.S. tax code is designed to recognize and address income inequality.

Currently, there are seven tax brackets in the U.S. These brackets are structured around your annual income for a given tax year. Please see the table below for an illustration of how these rates are set to work.

Tax Rate % Tax Bracket/Annual Income Tax Owed
10 Up to $9,525 10 Percent of Taxable Income
12 $9,526 to $38,700 $952.50 plus 12% of the amount over $9,525
22 $38,701 to $82,500 $4,453.50 plus 22% of the amount over $38,700
24 $82,501 to $157,500 $14,089.50 plus 24% of the amount over $82,500
32 $157,501 to $200,000 $32,089.50 plus 32% of the amount over $157,500
35 $200,001 to $500,000 $45,689.50 plus 35% of the amount over $200,000
37 $500,001 or more $150,689.50 plus 37% of the amount over $500,000

There are four ways you can file, which represents your tax status:

  1. Single
  2. Married, filing jointly
  3. Married, filing separately
  4. Head of Household

Here’s an example of your tax obligation if you file as single:

  • $9,524 at 10 percent=$952.40
  • The next $29,175 at 12 percent=$3,501
  • The final $11,301 at 22 percent=$2,486

Your taxes due at the end of the calendar year would be $6,939. If you apply the total taxable amount against annual income, your effective tax bracket is 13.9 percent.

The good news here is that you do not have to spend any time calculating your tax bracket because software programs handle that for you. For many people, an accountant is the individual who is asked to prepare tax return forms and those forms include all the calculations as well.

To the extent that you can invest in a tax-advantaged way, you should do so. Your best interests would be served by engaging with a financial advisor who will help you put together a short- or long-term investing plan. A wealth management plan will do its best to navigate your investments in a way that takes advantage of tax rules. By setting up a formal financial plan with an advisor, you are giving yourself the best possible hope, despite taxes, of having a successful outcome.

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Uses of Life Insurance

This picture helps depict the text having to do with uses of life insurance

Uses of Life Insurance

Ways of using life insurance

A permanent, whole-life insurance policy may be used to provide income to the beneficiary, or beneficiaries, at time of death. Most of us know and understand this. This is the primary function of a life insurance policy.

But a whole life policy has other uses, as well. Here, it’s important to make a distinction between a permanent policy and a term policy. Term is far more limiting in the uses it may serve, outside of offering up a death benefit. Term policies certainly come with advantages, no doubt. But only with a permanent policy may you put in place creative financial solutions in such a way that the policy has many more uses other than providing death benefits. Several of these are listed below.

  1. Cash flow. While it generally takes a whole life policy up to 10 years to begin generating cash flow, you can borrow against your policy much sooner. This method of generating cash flow is perhaps one of the most commonly understood advantages of a whole life policy. This is true because the life insurance industry, appropriately, goes out of its way to let policyholders know that this is a salient feature of how they can be used and why they should be purchased. Usually, you can pay the company back, with interest. Or you can have the loan amount deducted from the death benefit. As with all of these options, you should speak with an advisor before you decide to pursue a life insurance policy loan.
  2. Living benefits. Many newer policies now come with what are called “living benefits.” What this means, literally, is that you can access benefits, or policy payments, if certain afflictions develop regarding your health, without death being the trigger. These kinds of health issues usually surround whether you are critically or terminally ill or injured. Living benefits may be offered under term policies, but they are usually characterized in different ways from a whole life policy. Perhaps the best term here is “accelerated benefit riders.” However defined, these benefit options allow should allow you great flexibility should you have an unexpected need for cash.
  3. Tax shelter. The investment growth in a life insurance policy is tax-sheltered. That means that the investment return inside of your policy is not subject to taxation. It is allowed to continue growing (different kinds of investment alternatives exist and must be fully understood) tax-free.
  4. Estate preservation. If set up properly, the amount you pay in premiums to your policy may be deducted by your estate, thus limiting the amount of taxes you pay. Tax-free cash is available once the policyholder passes away and these payments may be used by heirs to cover estate taxes.
  5. Cash value for death benefits. If your policy permits, you may take your accumulated cash value and use it to purchase a greater death benefit. In this instance, rather than take a distribution of cash available to you, this amount can “go back” into the policy to increase the amount of death benefit that will be available to the policy beneficiary. The ability of your policy to offer this option is important, and you should carefully consider purchasing a policy that will not provide this level of benefit flexibility.
  6. There are numerous other advantages to purchasing life insurance. These far exceed the core reason, which is to provide for heirs at time of death. Many of these have to do with accessing the cash value portion of your policy. If there is one key provision of a life insurance policy, it is likely its ability to build a cash value that you can access for any number of reasons. These include loans to start a business or college education expenses.

Ways of using life insurance

It is important for you to understand the creative uses that life insurance policies offer. They are able to accomplish much more for you financially than simply paying burial expenses and providing income to your heirs. Know enough about them to know that you should seek out the advice of an experienced financial consultant before making any policy decisions.

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Saving for Retirement: Start Yesterday

Start Saving for Retirement Yesterday

Social security alone will not get us through our retired years

Saving for Retirement

There’s a pending catastrophe in this country whose origins began in 1946 and ended, roughly, in 1964. These are the baby boom years. The war was over, and men and women wanted to get on with their lives and start building their futures. They did so by, among other things, having children. Lots of children. It’s estimated that today there are somewhere between 70 and 80 million baby boomers in the country. Some are quite old; others are just now entering their sixties.

These individuals have been putting a strain on several key social safety net programs put in place, in many ways, dating back to the Franklin D.Roosevelt administration but also back to President Lyndon Johnson and his Great Society initiatives in the 60s. These include, principally, Social Security and Medicare. The latter of these is not so much the subject of this piece. The former, Social Security, is.

Saving for Retirement

The average Social Security monthly payout is slightly under $1,500 dollars. Think about that for a moment. Let’s say you had an on-and-off working career, for whatever reasons. Or say that your lifetime wage was never what anyone would call generous. Either of those translates to a low Social Security payout. (An important component of your Social Security payout is predicated on lifetime earnings.) And even if your Social Security payout is considerably larger than the average, unless you have access to significant other financial resources, most of your income in retirement will derive from Social Security. You may have a pension, and if so good for you. You may have a fat 401(k) account—good for you, too.

But no matter your income, and no matter your sources of income, these days you can expect to live a long time after you turn 60-years old. A 60-year old male who does not smoke is expected to live to slightly beyond age 84! That’s 24 years. And during those 24 years, if you represent the average individual, you will get sick and sicker (not meant to be depressing but an expression of reality). So even though Medicare, assuming it goes largely unchanged from today, will cover most of those expenses. But not all. Even with Medicare, you’re still responsible for a portion of your medical bills and monthly payments into the system.

Social Security was never meant to be the principal source of income in a person’s retired life. It was meant to augment other sources of income—income from retirement plans, IRAs, personal savings and investments. All of these, even though they have existed only for about the last 40 years or so. But the proliferation of retirement programs, set in place by the Employee Retirement Income Security Act (ERISA) of 1974, has not provided the relief many expected.

From Nerd Wallet, here’s a 401(k) account balance by age groups:

Ages 20-29:

Average 401(k) balance: $11,600.

Median 401(k) balance: $4,000.

 Ages 30-39:

Average 401(k) balance: $43,600.

Median 401(k) balance: $16,500

Ages 40-49:

Average 401(k) balance: $106,200.

Median 401(k) balance: $36,900.

Ages 50-59:

Average 401(k) balance: $179,100.

Median 401(k) balance: $62,700.

Ages 60-69:

Average 401(k) balance: $198,600.

Median 401(k) balance: $63,000.

It is, of course, not surprising that the higher your age, the higher your account balance. But still, look closely at the numbers and you’ll see that savings through our retired lives are woefully low.

Again, from Nerd Wallet: the average IRA balance is approximately $97 thousand. Of course, not all (401(k) savers have IRAs.

Saving for Retirement

So, imagine this: You are age 59 and you have $179 thousand in a 401(k) and $97 thousand in an IRA. That’s $276 thousand in savings for retirement. This same individual is, actuarially, likely to live another 25 years. Assuming no growth in any of these accounts, or loss, that leaves this hypothetical individual with slightly over $11 thousand per year to live off. Then, add in the average Social Security balance and this individual is “earning” a monthly income of slightly over $12 thousand. This will barely cover the rent on a one-bedroom apartment in most cities and even in rural areas.

There’s a moral here and it’s shockingly obvious. Baby boomers will likely not have enough time to save sufficiently for retirement. Starting at age 60 is too late; it’s also too late to start at age 50. This post is not meant to address any legislative changes that may need to be instituted to assist these individuals. Maybe our lawmakers will somehow take this issue up, or maybe not.

But no one should rely on help from that arena.

Start saving for retirement as early as possible. Encourage younger individuals to begin to save now for retirement (although that can be a daunting task; we generally do not do well at thinking this far ahead when we’re younger).

Here’s an example:


Initial Deposit Savings Frequency/Amount Years Rate of Return Amount Earned/Saved
$5,000 Monthly/$100 5 7 percent $13,923
$5,000 Monthly/$100 10 7 Percent $26,429


In this scenario, saving an additional five years more than doubled the five-year savings total. This reflects the power of saving for retirement as early as possible. The trick is to do so wherever possible in tax-advantaged arrangements such as employer-sponsored retirement programs, IRAs, Roth IRAs, Keogh if self-employed—any of these is good and will help you significantly in your retirement years. And it’s almost never too late: start today, whether you’re 35 years old or 65 years old.

As the expression goes, you’ll be glad you did.


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Estate Planning and the Portability Provision

show a family enjoying the benefits of sound estate planning

Estate Planning

Estate Planning and Estate Preservation

Estate Planning and the DSUE or the Portability Allowance

Estate planning is necessarily complex, and the greater the wealth at play the greater the need for complexity. This is not an activity left to a novice. Genuine and thorough estate planning must be performed by trained and experienced professionals. A lifetime of wealth accumulation should not be treated lightly when it comes to its disposition—that is, taxation—at death. A well-executed and formal estate plan can save millions for an individual’s family and loved ones. “Well-executed” means that details are not overlooked. “Well-executed” means that all financial eventualities be considered and accounted for. Finally, it means the planner is immersed in estate planning practices and knows important details that must be considered, whether employed in the final plan or not.

Estate Planning and DSUE

One important part of any estate planning work, when married individuals are reviewing their estate options, is something called the DSUE, or “deceased spouse’s unused exclusion.” DSUE is also referred to as the portability provision or allowance. Using one term or another does not change the meaning of the provision at all. In the broadest possible terms, when it comes to estate planning, portability simply means “porting over” from a deceased spouse to a surviving spouse any unused estate tax exemption. This provision was enacted eight years ago in legislation known as The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. In 2013 legislation, portability was extended indefinitely.

Before Portability

Before portability became law, married couples needed to set up a by-pass or credit shelter trust. These would be a repository for the deceased’s unused estate tax exemption. This preserved the assets from taxes—thereby eliminating double taxation—on the subsequent death of the surviving spouse. If the deceased spouse had any available estate tax exclusion left, it was effectively lost. Portability addressed that problem.

The Estate Tax Exemption

Simply put, the estate tax exemption allows an individual to preserve certain assets from taxation at time of death. Over long periods of time, this exemption has changed significantly. For tax year 2019, the IRS announced that the exemption will equal, per individual, $11.4 million. This amount, indexed annually to the inflation rate, is scheduled to be phased out of existence in 2025. What new dollar level will exist in 2025 would be anybody’s guess. Once an individual, not married, exhausts his or her exemption, the remainder is taxed at 40 percent.

Under these exemption rules, a married couple would collectively have an exemption of $22.8 million in 2019.

Here is a list of estate tax exemptions and the estate tax rate for the last eight years:


Year Estate Tax Exemption Estate Tax Rate
2012 $5,120,000 35.0%
2013 $5,250,000 40.0%
2014 $5,340,000 40.0%
2015 $5,430,000 40.0%
2016 $5,450,000 40.0%
2017 $5,490,000 40.0%
2018 $11,180,000 40.0%
2019 $11,400,000 40.0%

Here’s an example, without using DSUE. It’s the year 2018, and John, not married, passes away. John has an estate at death valued at $16.5 million. Earlier he set up an estate plan—and established a like provision in his will—within which he desired to have his assets at death to be split evenly between his two brothers, Bill and Josh. Of the $16.5 million, $11,180,000 is excluded from taxes. John’s taxable estate is thus $5,320,000 ($16.5 million minus $11.18 million). What remains is taxed at 40 percent, meaning the two brothers share equally in the remaining 60 percent ($5,320,000 times .6 equals $3,192,000).

Here’s how the assets look after John’s death. Bill and Josh both will inherit $5,590,00 with no tax penalty ($11,180,000 times .5). Plus, each will receive 50 percent of what is left after the 40 percent estate tax rate on $5,320,000, or $1,596,000 each. The total to each brother equals $7,186,000 ($5,590,000 plus $1,596,000).

This hypothetical calculation does not bring the portability provision, or DSUE, into play at all.

Here’s the significant point from the example above: taxes at death have a consequential impact on what our heirs get to keep at the point of inheritance. Also note this: certain states, but only a few, have chosen not to follow federal statutes and may have rules far more restrictive. A well-done and comprehensive estate plan will look at all applicable rules, federal and state, and take these into account. Otherwise, the likelihood for unnecessary tax exposure increases while inheritance dollars may take a significant and unnecessary hit. A qualified and conscientious wealth management strategist will help you avoid any miscues.

So, how does DSUE truly work?

Estate Planning: Porting Over Excess Exemption Dollars

In brief, here’s what DSUE, or portability, means. It allows an executor, or a specifically designated individual, to elect to file a decedent’s estate tax return in such a way that it “ports” to the surviving spouse any unused estate tax exemption. Rules exist for the filing of this estate tax return. A knowledgeable estate planning professional will make certain these filing requirements are met. Generally, the estate tax exemption DSUE form must be filed within nine months of the spouse’s death.

Let’s take John again, but under different circumstances. In this example, he’s married to Anne. This time, John has an estate valued at $15 million. Anne’s estate is valued at $13 million. John and Anne have two children, Mary and Adam. Several years earlier the couple put together an estate/financial plan that deliberately incorporated portability. John dies in 2018 and Anne, his executrix, files an estate tax return that formally establishes portability (it’s a specific tax form issued by the Internal Revenue Service). Without being overly simplistic, this allows Anne to retain the amount of the estate tax exclusion that John did not use.

It works like this.

In 2018, John dies. His estate tax exclusion for that year would have been $11,180,000. He used none of it in the form of gifts; he died with his full exemption intact. Anne, by virtue of the planning the two had undertaken, becomes the recipient of all her deceased husband’s exemption. She now has her tax exemption, which in 2019 is $11,400,000, plus John’s exemption from 2018 ($11,180,000) which is when Anne filed the portability tax forms. Her total estate exemption is, therefore, $22,580,000 (which includes John’s exemption of $11,180,000 the year he died). Both John and Anne, in 2019, are now deceased. John’s estate is still valued at $15 million and Anne’s at $13 million. Total estate assets are $28 million.

Children Mary and Adam are designated as 50/50 recipients of their parent’s estates. Their total estate tax exemption will be John’s 2018 exempt amount of $11,180,000 plus Anne’s 2019 exemption amount of $11,400,000. The total is $22,580,000. This amount goes to the children free of estate taxes. The difference between the full value of the estate, $28 million, and their collective exemption of $22,580,000 is $5,420,000. This is taxed at 40 percent, leaving the children with 60 percent.

Mary and Adam both will share equally in the following: $22,580,000 plus $3,252,000. Each, accordingly, receives $12,916,000, net. Wealth at this level, and certainly higher, cannot be preserved inter-generationally without the kind of necessary and sophisticated estate planning that takes available rules and allowances into account.

Generally, in the case where there are multiple spouses, the individual filing for portability must use the estate valuation numbers of the most recent spouse to die.

Estate Planning: Summary

There are no margins when it comes to estate planning. The knowledgeable planner will be fully knowledgeable of, and conversant with, all relevant principals at play for individuals undergoing the process. Mistakes can cost millions. Planner ingenuity can save millions. Do not take this exercise lightly. Seek out expert planners. Ask for references. Proactively ask about the portability provision: it can save and your beneficiaries millions.