dsmWealth: July 4, 2024

Uncle Sam wants YOU ... to buy a U.S. savings bond
BY STEVE DINNEN

You stood for the national anthem last night at Yankee Doodle Pops. You hoisted a flag in the front yard this morning, then saluted as an American Legion squad marched by at your local parade. Maybe some red, white and blue bunting will decorate the table at your backyard barbecue tonight, before some more fireworks light up the sky.

To cap off this year’s patriotic salute, you can also hop online to buy some U.S. savings bonds. Because, really, what’s more patriotic than giving money to the U.S. Government? After all, that same government issued bonds to private citizens as early as 1776 to bankroll the revolution.

Though savings bonds may seem out of date or hardly worth the effort, they’re a pretty easy way to grab a fixed-interest investment. They offer yields, for I Series Bonds, at least, that are competitive with other government debt instruments, such as Treasury-inflation protection securities.

The Treasury promotes savings bonds as safe, simple and affordable.

Safe? They’re backed by the full faith and credit of the government and are guaranteed to retain their value. Affordable? You can spend as little as $25 (or up to $10,000 in a single year, for either the EE or I bonds, though you can grab another $5,000 of paper-issued I Bonds). Simple? Well, sort of. You can no longer just walk into a bank and buy a bond from the teller. Nowadays, bonds are sold only online, after you establish an account with the U.S. Treasury. (You also can get I Bonds by using refund dollars due on your federal tax return.)

By the way, EE Bonds pay a fixed rate of interest, currently 2.7%. I Bonds carry an interest rate that bounces around a bit depending on the inflation rate. Their current rate is 4.28%. That’s a pretty respectable return these days, and is juiced up a bit because interest paid on either type of bond is taxed only at the federal level and free of local or state taxes.

Savings bonds get a bit more attractive if they’re used to fund higher education, because then they avoid federal taxes, as well. But take care not to title the bond in the name of the school-aged child, because this tax break is available only to owners age 24 or above.

So wave the flag all you want today. And when you sit down to think about your portfolio, don´t be afraid to wave a few dollars toward savings bonds as a safe, affordable and simple strategy for diversification.

My first savings bond and a brush with crime
BY STEVE DINNEN

I like U.S. savings bonds. Always have, even though my first foray into the world of government debt instruments was thwarted due to criminal activity.

Way back when (also known as 1963), bonds were sold in schools. The program went thus: Once a week you could buy a 25-cent stamp and put that stamp into a booklet. Once you collected $12.50 worth of stamps, you turned it in at the office, and pretty soon a U.S. savings bond valued at $25 (at maturity) was mailed to your home.

I was a pretty good saver and often kicked in 50 or 75 cents to buy multiple stamps. In short order I had $11 worth of stamps, so the finish line was within sight. But trouble lurked: Right after working with our booklets one day, we went to recess. I left my booklet on my desk when we went outside. When I got back from recess, my booklet had vanished.

I quizzed the teacher. She quizzed the class. Nobody knew a thing. I wanted to quiz adults — custodians often wandered into unoccupied classrooms while we were at recess. But such a demand from a fourth grader might have come across as a bit brassy.

That booklet was basically a bearer instrument; he who possessed it owned it and its value. Sure, my name was penciled in on the booklet. But an eraser would solve that problem. Just add six new stamps, and the new bearer could grab his or her own $25 bond.

From then on, I saved my quarters at home. When I had enough to acquire a bond, I did my business directly with a bank.

Banks still sold savings bonds back then. They got out of that business in 2012, but they still will redeem any paper bonds you may have acquired — even from way back when.

10 estate planning strategies to address sunset of 2017 tax exemptions
BY DANIEL RAHILL FOR FINANCIAL ADVISOR

The Tax Cuts and Jobs Act of 2017 (TCJA) brought about substantial changes to the tax landscape, significantly increasing the lifetime estate and gift tax exemption amounts ($13.61 million for individuals and $27.22 million for married couples). However, these exemption amounts are set to expire on Jan. 1, 2026, and — absent new legislation before then — will revert to approximately $7 million for individuals and $14 million for married couples, subject to inflation adjustments.

This pending reduction creates a “use it or lose it” scenario for individuals and families with taxable estates, and failing to capitalize on the current exemption could result in a substantial financial impact.

Given the federal estate tax rate of 40% and an expected exemption reduction of $7 million, this reversion would result in tax liability of up to $2.8 million per individual or $5.6 million for a married couple transferring their estate to heirs.

The IRS has clarified that benefits used under the current exemption won’t be subject to future reduction or “claw-back,” meaning that proactive estate planning can lock in a permanent tax advantage, making now an opportune time to act.

Estate planning for the mid-affluent

Contrary to common belief, the benefits of estate planning aren’t exclusive to the ultra-wealthy. The mid-affluent — individuals and married couples poised for significant asset growth — should also consider their future tax exposure. A mid-affluent couple with a $10 million estate today could see their assets grow well beyond the future exemption thresholds due to compounding investment returns. Historically, assets, such as those tracked by the S&P 500, have seen an average annual return of 7.3% over the past 30 years. Such a rate of return could double an estate’s value every decade. Thus, estate planning is imperative for those who may not currently exceed the exemption but may in the future.

Sports fans have no doubt heard the famous quote often attributed to hockey legend Wayne Gretzky: “Skate to where the puck is going to be, not where it has been.” The same philosophy applies to estate planning — don’t plan based on where the estate stands today; create a plan for where the estate will likely be in the future.

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How to get more dollars into tax-sheltered Roth accounts
BY LAURA SAUNDERS FOR THE WALL STREET JOURNAL

If you really want to get more dollars into your Roth IRA or Roth 401(k), you may need to take lesser-known paths to get around roadblocks.

These paths are newly useful for savers trying to move dollars into Roth accounts before the end of 2025. That’s when the 2017 tax cuts expire and income-tax rates will reset higher if Congress doesn’t act.

It’s easy to see why Roth accounts are coveted. Among other things, both growth and withdrawals can be tax free, and that can reduce other levies like income-based Medicare premiums or the 3.8% surtax on net investment income.

“Everybody with Roth accounts loves them. They’re like sacred money. But getting there can be tough,” says Martin James, a CPA and adviser with Modern Wealth Management in Indianapolis.

The main barrier to funding Roth IRAs and 401(k)s is paying taxes on dollars going into them. Contributions to traditional IRAs and 401(k)s, by contrast, are often tax-deductible. Nobody likes accelerating tax bills, especially when future tax rates are unclear.

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