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Disclosures Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Registration of an investment advisor does not imply a certain level of skill or training.

Healthcare benefits are an important part of your financial plan. Since medical costs can consume a significant amount of your savings, you should make sure you understand your health benefits to get the most value possible. At Ferguson, you have several healthcare benefits available to you. But, navigating the ins and outs of your Ferguson Healthcare Plan can be complicated. Let’s get started on helping you simplify your health benefits at Ferguson. Your medical coverage At Ferguson, you have a choice between a Consumer-Directed Health Plan (CDHP), or a Preferred Provider Organization (PPO). The CDHP is a flexible, high-deductible plan offered in combination with a Health Savings Account (HSA). The PPO provides flexibility as well and offers a lower rate for in-network services. Choosing the PPO coverage eliminates the ability to contribute to the HSA. It’s up to you which plan you participate in. You can choose, or change, your plan during the Annual Enrollment period each year. If you are currently enrolled in the PPO or CDHP, and you do not make any changes to your benefit elections during Annual Enrollment, you will continue on your current plan. As noted in this guide , there are new premiums and some plan changes in 2020. Specifically, there is a 3.7% rate increase across all salary bands and coverage tiers, and Live Health Online visits under the CDHP are now $59 before the deductible has been met. There are a few specific items to remember concerning your CDHP: If you are enrolled in the CDHP, you will pay the full cost of medical and prescription coverage until the plan deductible has been met. You may use your HSA debit card for health care expenses. After the deductible has been met, you are responsible for 20 percent of your in-network medical expenses and prescription costs (subject to minimum and maximum amounts) until you reach the out-of-pocket maximum. A comparison of the plan deductibles and out of pocket maximums are outlined below: PPO Deductible: In network, $1,000 single, $3,000 Family Out of network, $2,500 single, $6250 family CDHP Deductible: In network, $2,200 single, $5,400 family Out of network, $4,400 single or $10,800 family PPO Out of pocket maximum In network, $5,050 single, $10,100 family Out of network, $9,600 single, $19,200 family CDHP out of pocket maximum In network, $6,550 single, $13,100 family (includes prescriptions Out of network, $13,100 single, $26,200 family (includes prescriptions) Breaking down the Health Savings Account If you choose the CDHP as a first-time enrollee Ferguson will contribute $500 for an individual, and $1,000 for family coverage, into your HSA. If you are currently enrolled in the CDHP, you will receive an additional $500 regardless if you are enrolled in single or family coverage. You can contribute in addition to what Ferguson contributes, up to the annual HSA limit. For 2020, the limits are $3,550 for individuals and $7,100 for family coverage Individuals who are over age 55 may contribute an additional $1,000 Any contribution Ferguson makes to your HSA must be included in your annual limit If enrolled in the CDHP, you want to take advantage of this additional health savings vehicle. HSAs can play a vital role in your long-term savings efforts. With triple the tax benefits (tax-free contributions, growth, and distribution) and compound savings year to year, an HSA can present many long-term financial planning opportunities. Healthcare Flexible Spending Account You must re-enroll during Annual Enrollment if you wish to contribute to your FSA in 2020. Unlike the HSA, you are only permitted to roll over up to $500 of unused funds in your health care FSA account. Any remaining balance is forfeited. Terms stipulate that you have to re-enroll both the health and dependent care FSA each year, or you will not be able to participate in the program(s) for 2021. During 2020, you may use your FSA health care debit card for 2020 reimbursable expenses only like prescriptions, contacts, glasses, specialist needs, etc. After Dec. 31 do not use your debit card for any claims incurred. For reimbursement, submit claims in your online WageWorks platform. Please note that if you are switching from the PPO plan to the CDHP plan then you will need to use up all of your prior year FSA balance before becoming eligible to contribute to the HSA. Delta Dental Plan Details Have you scheduled your bi-annual cleaning yet? Now is the time to do so. Remember, you can use your FSA funds to help cover any additional costs. Ferguson uses Delta Dental as their insurance provider. Let’s take a look at the specifics of the plan. The calendar year deductible is $50 for individual or $150 for family and applies to both dental and orthodontic services. The maximum per person enrolled for calendar year dental is $1,500. That means that anything over that amount you are responsible for. There is also a lifetime orthodontics limit of $1,500. Blue View Vision Select You have two choices of vision plan at Ferguson: Gold or Silver. The gold plan offers more benefits, and fewer services require a copay compared to the Silver plan. It’s crucial to choose a plan that will work best for you. Those who just need a routine eye exam might not have the same needs as someone with a vision condition or ever-changing prescription needs, for example. Remember, if your vision needs change, you can update your converge during the open enrollment period. Participate in the Wellness Program Ferguson has a wellness program that encourages healthy living and activities. This system is completely optional and open to those who are enrolled in a medical plan or not. Through the wellness program, you can earn rewards by completing certain health and fitness-related activities. If you are enrolled in a medical plan, you can earn rewards by getting a routine physical, completing a maternity program, or going through a smoking cessation program, for example. When you complete a task or challenge, you earn rewards. It could be in the form of a company step challenge or active minutes or even mindfulness. There are many challenges and activities that you can check out designed to keep you moving and healthy. The bottom line Your Ferguson Healthcare benefits are extensive. While we have discussed a comprehensive overview today, you must take some time to review your benefits packet this year. That way, you’ll have a deeper understanding of what is offered and how to choose the right plan for you. If you’d like help maximizing your Ferguson benefits and developing a personalized financial plan for retirement, give our team a call and we’ll be happy to help. Mark Fonville, CFP® Mark has over 18 years of experience helping individuals and families invest and plan for retirement. He is a CERTIFIED FINANCIAL PLANNER™ and President of Covenant Wealth Advisors , an award winning wealth management firm in Richmond and Williamsburg, VA. Schedule a free intro call with Mark Disclaimer: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. Covenant Wealth Advisors is not affiliated with Ferguson. Ferguson benefits may change. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Registration of an investment advisor does not imply a certain level of skill or training.

401(k) plans are one of the most popular employer-sponsored retirement plans available. Alongside a reliable means of saving, they also allow for employer matching contributions and introduce a variety of tax-planning strategies. Download our essential retirement checklist for more helpful tips and considerations to retire with confidence. For many, a 401(k) plan is the most important tool to build retirement savings and support lifestyle needs in retirement, making it essential to understand your Huntington Ingalls 401(k). Although there are commonalities among 401(k) plans, each employer has leeway in what they offer. In this article, we will look at the fundamental elements of the Huntington Ingalls 401(k) plan, and how to take full advantage of the plan features. What is a 401(k) and How Does it Work? A 401(k) is a tax-advantaged defined-contribution plan sponsored by your employer to facilitate saving and investing for retirement. Upon its conception, Internal Revenue Code Section 401(k) was enacted to allow deferral of compensation for stock options and bonuses. By the early 1980s, the plans opened up to salary reductions, and companies started to favor 401(k) plans over traditional pensions. Between cheaper maintenance and less company investment risk, 401(k) plans rapidly replaced their defined-benefit predecessors. Your contributions to the Huntington Ingalls 401(k) are made by salary reduction, also known as elective deferral, which simply means you direct a portion of your salary to the plan instead of receiving it in your paycheck. Generally speaking, elective deferrals can be made on a pre-tax, after-tax, or Roth basis. It’s up to each plan to decide what they offer, and not all options have to be represented. The mechanics of elective deferral work in your favor. Since contributions are automatically deducted, you don’t have to actively think about them or plan for it. Investing at regular intervals when you get paid is a healthy practice too because the money is immediately invested in the funds you choose, instead of sitting in cash until you decide to contribute. Over several years, compounding returns have the potential to make a significant difference. Huntington Ingalls 401(k) Your Huntington Ingalls plan offers each type of contribution, up to 75% of your compensation. Let’s see how it works. Pre-tax 401(k) contributions. Contributions are deducted from your current-year income, up to the annual limit. For 2020, that limit is $19,500 plus an additional $6,500 for people 50 and over. Contributions and earnings are taxed at withdrawal. Roth 401(k) contributions . Same limits as pre-tax contributions, but taxed differently. Roth contributions are not deducted from current-year income, but contributions and earnings are not taxed as they grow and can be withdrawn tax-free upon retirement. After-tax 401(k) contributions . Not deducted from current-year income. Contributions are withdrawn tax-free, but earnings are taxed at withdrawal. The limit works differently for after-tax contributions and is based on total contributions to the plan from all sources. For 2020, all contributions to the plan cannot exceed $63,500 for people 50 and older. Because of the contribution choices possible in the Huntington Ingalls plan, you have several ways to save and take advantage of tax-planning opportunities . These strategies aren’t trivial and can make a meaningful difference in the amount of disposable income you have in retirement. You need to decide how you want to treat your contributions carefully. Consider your current and future tax rates, other sources of retirement income, and how much you can or need to save . Build Tax Free Income with an In-Service Distribution Rollover Everyone wants tax-free income in retirement. For many Americans, this can be achieved by contributing to a Roth IRA. Unfortunately, Huntington Ingalls executives and high income earners make too much money to qualify for contributing directly to a Roth IRA. So, what can you do? Known loosely as a "Mega Back-door Roth IRA", the Huntington Ingalls 401(k) offers the ability to sidestep Traditional Roth IRA income and contribution limitations. By taking the after-tax contribution feature one step further, Huntington Ingalls employees who are age 59 1/2 have the ability to complete an in-service distribution rollover from the 401(k) plan into a Roth IRA and Traditional IRA. The main benefit here is the ability to move the after-tax dollars into a Roth IRA and thus receive tax-free growth. The back-door Roth IRA strategy is available regardless of your income level. Keep in mind that the gains from the after-tax dollars will have to be placed in a Traditional IRA to continue to receive tax-deferred growth. Also note that not placing the in-service distribution funds into another retirement account (e.g. Traditional IRA & Roth IRA) could result in the distribution being taxable. Matching 401(k) Contributions Huntington Ingalls matches your 401(k) contributions depending on your business unit. There are also various sub-plans with unique matching structures. Sub-Plan A: 100% of the first 2%, 50% of next 2%, and 25% of the next 4% of contributions Sub-Plan CC: 100% of the first 2% and 50% of the next 2% of contributions Sub-Plan D: No company match Sub-Plan GG: 100% of the first 1% and 50% of the next 2% of contributions Sub-Plan AMSEC: 45% of tax-deferred contributions, up to a maximum annual match of $2,500 (2020) Sub-Plan CM: 100% of the first 2% and 50% of the next 2% of tax-deferred contributions Sub-Plan SN3: 100% of the first 2%, 50% of the next 2%, and 25% of the 4% of tax-deferred contributions Sub-Plan UPI: 100% of the first 2%, 50% of the next 2%, and 25% of the 4% of tax-deferred contributions Why Should You Care About a Huntington Ingalls Match? Your employer match is just about the easiest money you will ever make. Think of the match program as an instant return on your investment. You’ll have very few opportunities outside of 401(k) matching contributions to instantly earn a 100% return! You should take full advantage of any match. Just like your own contributions, employer contributions earn compound returns over time, which makes a significant difference in your total balance at retirement. Huntington Ingalls matching contributions vest at the end of three years, so they belong to you as long you have worked there for at least three years when you leave or retire. Investment Options The Huntington Ingalls 401(k) has plenty of low-cost index funds available to build a portfolio that helps you meet your retirement goals. We are huge fans of index funds because they are generally well-diversified, low-cost, and managers of the funds don’t try to time or predict the stock market. Instead, index funds focus on a buy and hold approach to investing. While no investment is guaranteed, we like that Huntington Ingalls provides these cost-effective investment options. If you aren’t interested in choosing your funds, you also have several target-date funds available. Download our essential retirement checklist for more helpful tips and considerations to retire with confidence. Your Retirement, Your Way Your Huntington Ingalls retirement plan provides you with many opportunities to set yourself up for a healthy retirement . But, a secure retirement won't happen on it's own. It's important that you start implementing key strategies early. Be sure you take full advantage of the generous benefits you have available and get advice early. We’ve helped many employees at Huntington Ingalls prepare for and enjoy retirement. If you are in your 50s or 60s, c ontact us and get objective advice on how to integrate your Huntington Ingalls 401(k) plan with your overall retirement plan. We'll help you clarify your goals, provide powerful insights to help achieve them, and partner with you long-term to keep you on track. From growing your wealth, to reducing taxes, to making smart decisions with your money, we can help. Ready to learn more about how we can help you retire? Schedule a call today ! Mark Fonville, CFP® Mark has over 18 years of experience helping individuals and families invest and plan for retirement. He is a CERTIFIED FINANCIAL PLANNER™ and President of Covenant Wealth Advisors , and award winning wealth management firm in Richmond and Williamsburg, VA. Schedule a free intro call with Mark Disclosures: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. Covenant Wealth Advisors is not affiliated with Huntington Ingalls. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like accounting, tax or legal advice, you should consult with your own accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Information contained in this article were retrieved from sources that are deemed to be reliable. Registration of an investment advisor does not imply a certain level of skill or training.

Last year, the unexpected bear market in bonds threw markets into turmoil and raised questions about fixed income's role as a bulwark against volatile stock prices. After 40 years of falling inflation leading to lower interest rates and ever-growing bond values, it can be difficult for investors to reconcile this new reality with their long term investment strategies. The outlook for bonds in 2023 is on top of many investor's minds. Should you keep bonds and fixed income in your portfolio? Are bonds still a good way to diversify? While temporary downturns may cause uncertainty around your bond strategy today, maintaining a patient outlook is paramount - especially when managing portfolios over multiple cycles. Free Download: 15 Free Retirement Planning Checklists [New for 2023] It is too early to make any definitive predictions, however this year the trend in bond interest rates has been significantly different from last. Rather than continuing an upwards trajectory like in past year, after reaching its peak of 4.2% at the end of October 2022, 10-year Treasury yields have begun to fall - something economists and investors had not anticipated. Last week's Consumer Price Index data indicated that overall inflation had decreased in December for the first time since June, with core inflation still rising but at a slower rate than before. Prices of new and used vehicles have dropped significantly, providing some relief to consumers; additionally landlords may be offering more favorable rates on leases as they roll over which could further reduce shelter costs. Bond Returns are Positive Year-to-Date The rising cost of living is often an intimidating force for consumers, but recent news about inflation should bring a glimmer of hope. After reaching 6.5% higher compared to the year prior, Treasury Inflation-Protected Securities (TIPS) are now priced with expectations that annual inflation will be only 2.2%. With easing interest rates and the hopes of Fed rate hikes being paused this year, it appears there may soon be some relief from climbing prices - creating optimism in economic outlooks across the nation! Free Download: 15 Free Retirement Planning Checklists [New for 2023] Last year's decline in bond prices has presented the perfect opportunity for long-term investors to maximize their expected returns going forward - with bond yields now significantly more appealing. This phenomenon can be attributed to the relationship between interest rates and bond prices: when one rises, the other one falls. In 2022, bond prices declined thus leading to increased interest rates. Bonds Are Yielding More Than They Have in 14 Years Bond yields are now at their highest levels in more than a decade, presenting investors with the unique opportunity to purchase fixed income securities that offer higher returns and increased diversification within their portfolios. With an average yield of 3.9%, investment grade Treasuries have yielded significantly above its 1.7% since 2009 while corporate bonds generate 5% and high-yield bonds 8%. These substantial gains stand as a stark contrast compared to just 14 years ago when investors had little other option but take on more risk for comparable rates of return. Corporate bond yields and credit spreads Are Improving Despite the possibility of an economic slowdown, credit outlook remains optimistic - with market expectations pointing towards a mild recession and companies well-positioned to repay debts. Recent months have seen improved spreads on credits as positive figures for the job market continue, along with signs that Federal Reserve tightening could be slowing down. Despite positive momentum early this year, investors must be aware of potential surprises on the horizon. A standoff in Washington could have negative repercussions for bond markets. Surprises often occur as you may recall when Standard & Poor's downgraded U.S debt back in 2011. That hurt bond markets in the short-term. Additionally, commodity prices and supply chains may suffer if geopolitical tensions worsen or credit default rates rise with a worse-than-anticipated slowdown domestically or abroad respectively. Free Download: 15 Free Retirement Planning Checklists [New for 2023] Investing in bonds now can be intimidating based on recent events over the past 18 months. But, it also presents an opportunity now that bond yields are higher. With the right approach and steady commitment to long-term planning, investors have an opportunity to position their portfolios for success over years and decades! So, what's the bottom line? Despite potential bumpy roads ahead, keeping a balanced portfolio with bonds can help offset the risk of stocks. Interest rates may be rocky at times but if investors stay consistent and stick it out long-term, maintaining the right allocation to bonds in your portfolio is still a prudent approach to investing. Schedule a free retirement consultation with Covenant Wealth Advisors today! Mark Fonville, CFP® Mark is a fiduciary, fee-only financial advisor at Covenant Wealth Advisors specializing in helping individuals aged 50 plus plan, invest, and enjoy retirement without the stress of money. Forbes nominated Mark as a Best-In-State Wealth Advisor* and he has been featured in the New York Times, Barron's, Forbes, and Kiplinger Magazine. Schedule a Free Consultation Disclosures: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Registration of an investment advisor does not imply a certain level of skill or training.

A Roth conversion in retirement can provide you with several benefits like lower taxes, reduced RMDs, and greater flexibility. But is a Roth conversion in retirement the right strategy for you? We walk you through some points to consider in this article and have an easy-to-follow guide you can use as well. The Fundamental Difference Between Roth and Traditional Accounts (And Why It Matters So Much) The key to understanding the benefits of a Roth conversion in retirement is knowing how each account type’s withdrawals are taxed. Taxing Traditional IRA Accounts In general, you can deduct contributions to a traditional or tax-deferred retirement account on the front end, assuming you meet certain income limitations. Keep in mind that you may be unable to make deductible contributions to a traditional individual retirement account (IRA) if you’re covered by a workplace retirement plan or if your gross income exceeds certain limits. The IRS doesn't tax the growth of the money until you withdraw the funds after age 59 ½, at which point you'll pay income tax on the distribution. If your entire retirement savings is in tax-deferred accounts, all of your income will be taxable. Want a comprehensive guide on determining if a Roth Conversion is right for you? Download our Roth conversion workflow here . Taxing Roth Accounts Roth IRA contributions, unlike IRAs and 401ks, do not receive an up-front tax deduction. However, you don’t owe any taxes on qualified distributions when you withdraw the funds in retirement. That includes withdrawals of any investment gains over the years. Tax-free withdrawals bring much more flexibility to your retirement income plan. Tips On Where To Save Deciding whether to invest in a traditional or Roth account depends on your tax bracket. You’ll evaluate your tax rate now compared to what it likely will be in retirement. If you anticipate your tax rate will be higher in retirement, it’s often in your best interest to pay the taxes now so that you can withdraw funds tax-free in retirement. In other words, a Roth makes sense. But what if you already have tax-deferred savings? Here’s where a Roth conversion comes in. What’s a Roth IRA Conversion? A Roth conversion allows you to convert money from a traditional account into a Roth account. By initiating a conversion (or Roth rollover), you’ll owe income taxes on the amount you convert in the current year, but that money enjoys the benefit of tax-free growth and withdrawals in the future. You can even take advantage of this backdoor Roth strategy if you are already retired, although there are some things to watch out for that we will talk about in a minute. Be aware, though, that if you are subject to current required minimum distributions (RMDs), you still have to take your RMD for the year before a conversion. RMDs themselves cannot be converted. So as you're planning for your retirement, how can you know if a Roth conversion is the right move for you? How to Tell if a Roth Conversion In Retirement is Right For You A Roth conversion can be the right move for many reasons. Any one or a combination of the following can mean a conversion is a good choice for you. You presume taxes will be higher in the future . It’s a fact that our current tax brackets are historically low. Given the sizeable national debt (Close to $29 trillion in 2021!), many believe that those rates will go back up at some point. If that’s the case, then converting and paying tax now would save you money in the long run, even if your current tax bill is a little higher. You will be in a higher tax bracket in retirement . If you can clearly see that with your current savings you’ll be pushed into a higher tax bracket in the future, converting may allow you to avoid that higher bracket. Yes, your taxes will go up now, but it may save you even more throughout retirement, a time where being tax conscious can have a significant impact on your lifestyle and legacy. You had a low-income year and are in a lower tax bracket than typical . Maybe you were laid off or are a business owner, and things were slow. If your taxable income is lower than average, you could take advantage of that by converting some of your savings. You are concerned about passing money to your heirs . The SECURE Act eliminated the “stretch provision” for inherited IRAs, meaning most non-spouse beneficiaries have to withdraw all the funds within ten years. Getting rid of this rule could mean more taxes for your heirs. But Roth IRAs are not subject to RMDs, so you can let that money grow and pass it on as part of your estate plan. Tax diversification . Things change over time, and taxes are no different. Having savings that are treated differently for tax purposes provides you with the flexibility to adapt to changing circumstances and tax laws. When A Roth Conversion Might Not Be The Right Move Despite the potential benefits, a Roth conversion in retirement is not always the best option. A Roth conversion may not benefit you if: You are in or near retirement and will need to draw a significant amount of income from your traditional account . Adding a conversion on top of that withdrawal could drive your taxes up even more than you’ll be able to reduce in the future. You may not have time to recoup the tax hit by the time you need to withdraw from the Roth accounts. Your Social Security and Medicare are affected by your taxable income in retirement. Depending on your income, either none, half, or 85% of your Social Security benefits are taxable . A Roth conversion could push you over the line for hitting the next level. Your Medicare Part B premium also includes an adjustment based on your income (IRMMA). The amount could be up to several hundred dollars a month, so make sure to consider those tax implications. If you plan to donate to charities with your traditional IRA assets, the Roth conversion is not the best way to approach this goal. There’s no reason to convert and pay taxes when a Qualified Charitable Distribution (QCD) would allow you to avoid taxes on the gift anyway. Painting a clear picture of your tax liability is a critical component of your financial plan. At Covenant, we have in-house financial planners and tax professionals to help you create a comprehensive plan that meets your needs. Contact us for a free, no-obligation consultation to see if we can help you with Roth conversions and dozens of powerful retirement strategies. Disclosures Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Registration of an investment advisor does not imply a certain level of skill or training.

Covenant Wealth Advisors is excited to announce that our firm was recently identified as one of the best financial advisors in Williamsburg, VA by Expertise.com for 2021. Expertise.com identifies the best financial advisors in Williamsburg, VA by implementing a thorough selection process including five main criteria. Availability Qualifications Reputation Experience Professionalism Expertise.com goes even farther by mystery shopping the companies they select. This means they have mystery shoppers call each company, identifying themselves as potential clients, to gauge knowledgeability, friendliness, and professionalism. Congratulations to our great team of financial advisors for always putting client interests first. Registration of an investment advisor does not imply a certain level of skill or training.

Transcript: Hello everyone and welcome to the third quarter Quarterly Market Perspectives. My name is Broderick Mullins and I am the Portfolio Manager at Covenant Wealth Advisors. I’ll be your host for this presentation. As was the case last quarter, this presentation has been revised to provide a better discussion of quarterly equity and fixed income performance along the framework of absolute returns, relative returns, and future expectations for market performance. We begin our discussion with a high-level look at a collection of major asset classes. As we can see from the illustration, U.S., international and emerging markets stocks were all lower during the third quarter, with Emerging Markets experiencing the largest decline of 7.4 percent for the quarter. Returns for U.S. and global bonds on the other hand were positive. Next, I’ll draw your attention to the upper right hand portion of the graphic. The US Dollar was up 4.8% for the quarter and up 0.4% over the last 12 months. Interesting to note, the movement of the US dollar matters because a strengthening US dollar can hurt your international stock performance and a weakening US dollar can improve your international stock performance. Now, Let’s look a little deeper at what was driving the returns of stocks and bonds. We’ll start by taking a look at how global markets performed for the quarter, and we’ll isolate the performance between U.S. stocks and developed international stocks. The two charts show the performance of different investment styles between the U.S. and international stocks. The bright blue bars represent the performance of different investment styles, and the dark blue bars represent the total market performance for the region. U.S. returns are measured with the Russell indexes, and international market returns are measured with the MSCI World xUS index series, which represents global developed market performance, excluding the United States. As we can see from the dark blue line on the chart located on the left, the U.S. market was down 0.1 percent in the third quarter, compared to down 0.4 percent for developed international markets depicted on right side of the page. Continuing the trend from the second quarter in the U.S., large growth was the dominant style. However, we saw small cap stocks of all styles outperform their large cap counterparts internationally. It’s important to remember that the performance of one quarter is filled with statistical noise that is difficult to make sense of in such a short time frame. Now we take a longer view to see how different investment styles have performed for standard periods ending September 30, 2021. Looking at annualized returns in the U.S., we can see extraordinary returns for the one year as the recent performance still shows the effects from coming out of the COVID market downturn. Small value performance far exceeded the general market over the last year, returning more than 63 percent compared to nearly 32 percent in the U.S. However, we see that small value has underperformed most other styles at the 3, 5, and 10 year investment horizons. Consequently, we expect that portfolios that have a small value tilt, such as those that we typically design for clients, will have underperformed portfolios that are market-cap weighted or tilted to large growth stocks at these longer investment horizons. It is important to recognize, however, that despite the under performance, small value has still returned a formidable 13.2 percent per year in the U.S. for the last ten years. Turning to international markets, we see small cap value has led the pack over the one year period albeit at a lower total return compared to the U.S.. At the longer time horizons, we see small caps, particularly neutral and growth stocks, offering the highest returns over the 10 year period at 10 percent and 11.1 percent respectively. Relating the prior slides, we see that international markets have under performed the U.S. market at every horizon, with the 3 year performance trailing by nearly 8 percent per year and the 5 and 10 year performance trailing by 7.8 and 8.4 percent per year respectively. Given the higher U.S. return, we expect portfolios concentrated in U.S. stocks to outperform a globally diversified portfolio. However, as we’ll see in the next slide, these relative performance numbers aren’t reason enough to abandon international stocks. Thus far, we’ve discussed quarterly performance on a relative and absolute basis. Now, let’s take a look at current stock market valuations and how they relate to future expectations of market performance. The charts on this slide show how expensive stocks are by measure of the price-to-earnings ratio, a very common metric used to value equities. The higher the ratio is, the more expensive the asset class is overall. Thought of another way, these values depict how expensive one dollar of earnings are. For example, as we can see in the chart on the top left, the average dollar of earnings for the total U.S. stock market costs roughly $24. Internationally, as we can see in the chart on the top right, earnings are cheaper at roughly $17 per dollar of earnings on average. The values represented here used historical fund and ETFs to establish the price ratios, and the average P/E is reflected by the dotted line on the chart. These averages start in the first quarter of 2004 for U.S. measures, and in the 4th quarter of 2006 for international stocks. So the average is roughly 18 years in the US and 15 years internationally. In addition to identifying relatively cheap segments of equity markets, these ratios also help set the table of forming expectations about the future. Although we like to say our crystal ball is always cloudy, there tends to be an inverse relationship between current equity valuations and future performance. Generally, investors will bid up the price of certain stocks in expectation of higher future earnings. Therefore, as a particular group of stocks becomes more expensive, their expectations for future earnings growth are lessened because investors are less willing to pay an ever-growing premium for those expected earnings, especially when earnings can be bought elsewhere for less. I’ll emphasize that this is a long-term relationship, and as we’ve already seen on previous slides, there’s a wide range of possible short-term outcomes. Here we have the same analysis but isolating US equities so we can see how valuations compare across different styles. Recalling the annualized performance slides, we know that large cap growth has had an exceptional 10 year period. We can see that the growth in prices has exceeded the growth in earnings as the P/E ratio has climbed to 35.3 to close the quarter. Small cap value, on the other hand, even with the rebound in the year, still has a P/E ratio under 13 and under the average of the last 18 years. Although many investors may be interested in chasing the returns of large cap growth companies, we would point to these valuation charts as one reason to stay the course in a diversified portfolio tilted to smaller, distressed companies. Next we’ll take a look at fixed income performance, the shape of the current yield curve, and how the market is currently pricing inflation. The charts on the screen show the average performance of different bond maturities and the segments of the fixed income market that we commonly track. We typically prefer investing in bonds that are shorter maturity and higher quality compared to the broader market. In the chart on the left side, we see short-to-intermediate term bonds posted generally flat performance. The 3-7 year maturities lost 0.1 percent for the quarter, but were outperformed by longer dated bonds as the longer end of the yield curve fell. It’s worth noting that the extreme price fluctuations that we tend to see in the 10-20 year bonds are why we like to keep maturities short to intermediate. Although it was a tail wind this quarter, we’ve seen plenty of quarters historically where the yield curve has moved against us. The chart on the right shows the performance of different intermediate maturity credit quality bonds. We see that inflation protected bonds have continued to be bid up as more investors seek to hedge their exposure to inflation. Treasuries had flat performance for the quarter, while corporate and municipal bonds returned 0.1 and -0.2 percent respectively, indicating tightening credit spreads and investors showing a slight preference for corporate debt as opposed to municipal debt during the third quarter. Next we’ll look at the treasury yield curve and what it means for returns going forward. Here we plot the yield curve to show us the current yields for treasury bond investments at different maturities. The bright blue line represents current rates, the dark blue line represents interest rates at the end of 2020, and the gold line represents rates one year ago. In short, the early part of the curve is steeper and is elevated overall compared to the end of 2020 and to one year ago. Practically, this means that expected returns on fixed income are higher, but that treasury returns would have been negative year to date and over the one year period. It’s worth noting that most of the yield curve changes year to date happened in the first quarter, and that rates continued to rise slightly between the end of the second quarter and the end of the third quarter, which is why we saw generally flat performance from bonds in the third quarter despite seeing higher yields compared to the first part of the year. Finally, we plot the markets’ forecast of inflation by taking the difference in yields between U.S. Treasury bonds and TIPS at different maturity levels. Like the last chart, the bright blue line represents current inflation expectations, the dark blue line represents inflation expectations at the end of last year, and the gold line at the end of the third quarter last year. Consistent with what many are expecting and what we’re hearing in the media, inflation expectations are higher compared to this time last year or even compared to the end of 2020. It is important to remember that these levels of inflation are baked into prices today: the markets are pricing an average inflation rate of 2.5 percent per year for the next five years, and the market collectively expects inflation to exceed the Fed’s 2 percent target over the next 30 years. Not only are these expectations baked into bond prices, but they’re also baked into equity prices. Making a bet on ‘higher’ inflation would mean that we expect inflation to exceed the current forecast – the market already expects inflation to be higher than what was previously expected over the last year. And with that, we’ve reached the conclusion of the presentation. As always, I hope you learned something new and if you are an existing client, thanks for your trust. Registration of an investment advisor does not imply a certain level of skill or training.

The Affordable Care Act ( Obamacare) of 2010 brought ample changes to the healthcare system. In addition to coverage requirements, the Affordable Care Act provides health insurance premium subsidies that vary depending on your income. In 2021, American Rescue Plan greatly expanded those subsidies also known as premium tax credits. Now, you might qualify for subsidies for your health care, even if you were well above the previous income limit. Here's how to qualify for the affordable care act subsidy . 2021 ACA Subsidies from the American Rescue Plan In response to COVID-19, the federal government implemented the American Rescue Plan Act in March 2021. This coronavirus relief package brought several economic benefits to American families like direct payments, expanded unemployment benefits, broadened the child tax credit, among several other advantages. It also played a significant role in the Affordable Care Act (ACA) premium subsidies by expanding eligibility to higher-income individuals and families who did not qualify previously. Before the American Rescue Plan, individuals who earned more than 400% of the federal poverty level (fpl) did not qualify for any subsidy. But, the bill eliminated an upper-income ceiling for the tax credit and instead changed the rules to a percentage of your premium in proportion to your income. If your premium exceeds 8.5% of your income, then you qualify for a subsidy. The federal bill also increases ACA premium subsidies for lower-income individuals and families who already qualify. Individuals whose household income is 150% or less of the national poverty level are now eligible for premium-free coverage through the ACA marketplace. If you received unemployment benefits at any point during 2021, then you may qualify for significant subsidies as well. By meeting specific IRS requirements, your income will be counted as no more than 133% of the poverty level, regardless if it was actually much higher. That’s the case even if you only received unemployment benefits for a small portion of the year. As you can see, qualifying for Affordable Care Act subsidies is possible regardless of your income. It’s imperative to consider the ACA in your financial plan . How To Tell If You Qualify Now that we have looked at the recent changes to qualification requirements, you can use this information to see if you qualify for the affordable care act subsidy. First, you’ll need to understand how the ACA subsidy defines your “income.” It’s based on your Modified Adjusted Gross Income (MAGI). Although MAGI isn’t directly stated on your tax return, you can calculate it with information from your return. It may be helpful to have a tax professional or financial advisor help you with navigating the numbers. For example, at Covenant Wealth Advisors, we use advanced tax planning strategies software to help client calculate their MAGI. In turn, we can then tell them how to qualify for the affordable care act subsidy. Beyond knowing that you qualify for subsidized coverage, you need to know how much you are eligible for. The amount you receive will also depend on your income levels. In general, the higher your annual income, the smaller the subsidy. However, given the recent changes we just discussed, even if your income is above 400% of the federal poverty level, you shouldn't have to spend more than 8.5% of your income on health care. So what if you are currently spending more than that with (deductibles, monthly premiums, co-pays, co-insurance, and other out-of-pocket costs, etc.) on your healthcare? The subsidy will make up the difference between 8.5% of your income and what you're paying. You can use an online calculator like this one or talk to your financial advisor to get an idea of how much of a subsidy you may qualify for. Keep in mind that there are several circumstances that could disqualify you from eligibility for ACA premium subsidies: Your employer-sponsored health plan has to meet two criteria: affordable and provide minimum value. If your workplace plan fits these benchmark plans, you aren't eligible for a subsidy on the exchange. The affordability metric only applies to you, no other family members or other dependents. Once you turn 65, you often qualify for premium-free Medicare Part A, thereby disqualifying you from premium subsidies. Those on Medicaid don't qualify because Medicaid often provides additional financial support. Identifying critical ways to save our clients money via premium subsidies, cost-sharing reductions, and more, in the long term is one of our key strengths at Covenant Wealth Advisors. Healthcare is one of the biggest ticket items in your retirement plan, so making the most of subsidies and other tax credits can keep more of your money working for you to support your retirement goals and less funneled to the healthcare system. We use sophisticated tax planning software to analyze your total tax picture to identify specific actions to take to improve the chances that you qualify. Next Steps Toward Receiving ACA Subsidies After applying the new rules to your own situation, you may find that obtaining a health plan through the health insurance marketplace is a cost-effective option. Even if you already have health insurance coverage, it’s helpful to compare your current health insurance plan to the plans available through the ACA marketplace. If your calculations show you could be saving money with subsidies through one of the ACA marketplace plans, you can switch from your current health insurance company! To switch, you’ll need to do it during ACA open enrollment period. The open enrollment period for coverage starting in 2022 is from November 1, 2021, through January 15, 2022. You’ll also need to create an account on HealthCare.gov. From there, you can browse the plans and see what each would cost based on the state you live in, your family size, and income. The best part is, you don’t have to do all of this on your own. Reach out to your advisor for help changing your health insurance or talk through the long-term impacts of switching. If you don’t have a trusted advisor, we would be happy to help. Call us today to see how we may be able to help you navigate the ACA and reduce your health insurance costs. Katherine Fonville is a personal financial advisor and fee-only financial planner and founder of Covenant Wealth Advisors. She manages investment portfolios for individuals age 50 plus with over $1 million in investments. Schedule a call. Disclosures: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. We provide investment advisory, financial planning, and tax planning services to individuals. Investments involve risk and does not guarantee that investments will appreciate. Past performance is not indicative of future results. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance, and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Registration of an investment advisor does not imply a certain level of skill or training.

Are you about to receive a pension? Great, you’re among the fortunate few! Now, you are probably wondering: Should I take the lump sum from my pension or take income for life? Download our cheat sheet of considerations before you retire for more helpful tips. Deciding how to take your payout can be one of the most powerful retirement decisions you make because it can impact your entire retirement income plan for the rest of your life. Generally speaking, you have two broad options: Lump-sum (which you could rollover into an IRA) Lifetime income payments (which translate to monthly payments) Each comes with pros and cons and several considerations dependent entirely on your unique financial and personal circumstances. Here’s how to tell if you should take the lump sum or lifetime income payments from your pension. Pension Plan Basics A pension is a type of retirement plan offered through an employer as a benefit, much like the far more common 401k plan. Although both types of plans are meant to provide you with a source of income in retirement , the way they do it is vastly different. Understanding Defined Contribution Plans A 401k is a defined contribution plan, meaning you save money by placing a specified amount of your paycheck into the plan each pay period. So, the total amount of money you have in retirement is primarily determined by how much you contribute and your contributions’ rate of return. In this case, the contribution is known or “defined,” but the benefit is not. Why A Pension Plan Is Different A pension is a defined benefit plan and functions oppositely. Typically, employees do not contribute to the pension but instead accrue a retirement benefit that their employer will pay them once they retire. With a defined benefit pension plan, the employer is on the hook for ensuring there is enough money in the plan to fund the promised benefit. However, companies don’t simply make an educated guess on that number. Qualified pension plans are required to have trained professionals, enrolled actuaries, determine that companies adequately fund the plan every year. In addition to the stringent accounting requirements, pensions are also covered by the Pension Benefit Guaranty Corporation , or PBGC, which protects retirees in case a plan is unable to pay earned benefits. How Pension Plans Determine Retirement Benefits So how does the employer define the benefit that employees receive? Each plan has a specific benefit formula. The most common type of formula bases the benefit calculation on two factors: How much the employee earned, and The number of years they were employed with the company. Often, the higher the employee's income and the longer they were employed, the more significant the benefit. Retirees usually have several options for how they wish to receive their benefit as well. The most basic decision you will have to make is whether to receive your benefit as a single lump sum or as a stream of regular payments—often for life. In some circumstances, companies offer employees a buyout, where the company agrees to pay you a certain amount of money and in exchange, releases itself from future payment obligations. In the case of a lump-sum offer, you may need to think about these issues earlier than initially planned, especially if the company is terminating the pension plan. Evaluating Lump-Sum vs. Lifetime Income For Pension Payouts If you have the option between taking your benefit as a lump sum or lifetime income payments, then you’ll want to do a little analysis. Below are a few factors that can help bring context to your decision. Timeframe Start by looking at the raw numbers, and consider how the lump-sum distribution would compare to the recurring payments for different lengths of time. For example, if you collect payments for 10 years, how does that stack up to the lump sum payment? Could you have invested the lump sum (in an IRA, the stock market, etc.) and reasonably expected to withdraw more than the payments provided you over that time? What about 15 years? 30 years? The longer you draw out the timeframe, the more likely it is that taking the payment stream is the more lucrative option. So what do you do with that information? First, think about how long you might expect to live and ask yourself which option will most likely provide you with the most benefits. Does your family have a history of living well into their 90’s or do they have normal or shorter lifespans on average? What about your own physical well-being? Are you in good shape with no medical complications, or do you have health concerns that suggest you may not live another 30 years? Personal Comfort Level This decision is not a simple math problem. Sure, you need to consider the raw numbers (total benefit, interest rates, etc.), the length of time you plan to collect benefits, life expectancy, health, dependents, beneficiaries, and more, but those elements aren’t the end-all-be-all. Your personal preferences matter, too. Does the thought of having a steady and guaranteed income put you at ease? Peace of mind absolutely deserves a place in your decision. After all, you should enjoy your retirement and not stress about money all the time. Or, does the idea of a lump that you could access if you needed to sound better? Maybe you’re excited about the possibility of reinvesting those funds in other areas of your life. Or perhaps quicker access to the money could help you achieve one of your significant financial goals. Keep in mind that the lump-sum option will come with more sophisticated investment decisions. You’ll have to build a proactive investment plan and withdrawal strategy to make the most of the opportunity. Selecting the regular payment stream doesn’t have this added layer. It's also critical to evaluate the tax implications of each choice. By taking a lump sum and investing, you may not have a clear idea of your future tax responsibilities as it depends on where you invest, investment returns, and when you withdraw it. Remember, you will need to take required minimum distributions (RMDs) if you invest in a traditional IRA, which could increase your income tax liability for the year. If you choose the monthly payments, you'll likely have to pay income tax on the distributions. Since it's a set number each month, you'll have more consistency in your annual tax planning. No matter your choice, we’ll help you look at the implications for your entire financial picture: income goals, cash flow, tax projections, and more. Other Income Don’t lose sight of the fact that the whole point of a pension is to provide for you in retirement. Consider how your other sources of monthly income come into play. Do you have other steady sources of income from Social Security or annuities? Then, you may not need to take lifetime payments from your pension. If your other sources of income are less steady, your pension payments may be able to provide you with some stability. How To Choose What’s Right for You Various factors are at play when deciding between a lump sum or lifetime income, but ultimately, it's up to you to choose what's best for your money and life. It's so beneficial to have a trusted financial advisor in your corner to help you understand your options and make the best choice for your situation. If you're nearing retirement and need help figuring out the best choice for you, talk to us at Covenant Wealth Advisors. We can walk you through critical retirement income decisions and set you up for ultimate success in your retirement years. Broderick is a personal financial advisor and fee-only financial planner with Covenant Wealth Advisors. He manages investment portfolios for individuals age 50 plus with over $1 million in investments. Schedule a call. Disclosures: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. We provide investment advisory, financial planning, and tax planning services to individuals. Investments involve risk and does not guarantee that investments will appreciate. Past performance is not indicative of future results. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance, and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Registration of an investment advisor does not imply a certain level of skill or training.

Disclosures Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Registration of an investment advisor does not imply a certain level of skill or training.

It goes without saying that giving great service and advice are our top priorities at Covenant Wealth Advisors. We strive to excel in both areas every day. It's not easy but we recognize how important these components are to the success of our clients and our firm. The truth is, we've been blessed with great clients and a great team. That combination is something most companies never achieve and we're proud that our clients have chosen to be a part of the CWA family. That's why our team at Covenant Wealth Advisors is excited to be the #1 fastest growing company in Richmond, VA a s published by RichmondBizSense in 2020 . Growth is good as long as we can continue to deliver great service and advice. But, we need good people to do that and good people are hard to find. Ultimately, we find good people by clearly articulating our values and being true to our word. After all, good people always have good values. Thanks to all of our clients and to the greater Richmond area for being a great place to help others with their personal financial needs. If you would like to learn more about the CWA experience, contact us today. Disclosures: The RVA25 is an annual survey performed by Richmond BizSense. Companies profit and loss statements were reviewed by an independent accounting firm, Keiter CPA, and analyzed for three year revenue growth end December 31st, 2019. The top 25 fastest growing companies were chosen as recipients of making the RVA25 list. No fee or compensation was provided to Richmond BizSense or Keiter CPA for participation in the survey. Registration of an investment advisor does not imply a certain level of skill or training.

Charitable donations play a significant role in many people’s financial lives. When you give, you understand th at offering time, talent, and resources to a cause you care about can enrich and rejuvenate your life. Along with the personal and social benefits, there are also many tax benefits to maximize your charitable efforts. Even though your primary purpose in giving is to help further a cause you care about, it makes sense to do it in the most tax-advantaged way. While most people donate to charities by giving cash or writing a check, this method overlooks more tax-efficient options, such as qualified charitable distributions or QCDs . In this article, you'll learn the features and benefits of a qualified charitable distribution to help maximize your charitable donations and reduce taxes. If you want to know if you are eligible to make a QCD, download this free guide. What are Qualified Charitable Distributions? A QCD is a donation made directly from an IRA to a qualified charity. QCDs are beneficial for retirees as it allows them to donate all or a portion of their required minimum distributions (RMDs) directly to the qualified charity of their choice. This vehicle minimizes their annual taxable income and maximizes their regular donation strategy. Generally speaking, you can donate all or a portion of your RMD, up to $100,000. What are the QCD rules? Like all strategies with a tax benefit, there are specific rules you have to follow. The single most important item to be aware of is that to qualify as a QCD, the distribution must be made directly from your IRA to the qualified charity. You can’t take the distribution as cash, or a check made out to you, and then donate to the charity. Your IRA custodian will need to make the check out directly to the charity. You must have a traditional IRA, inherited IRA, SEP IRA, or Simple IRA for the QCD strategy to work. You can't do a QCD from a 401k, and you must be 70 ½ years old. If the IRA (SEP IRA or SIMPLE IRA) is actively receiving employer contributions then you can't do a QCD. QCDs are limited to $100,000 for each person. If you are married, you and your spouse can each make a $100,000 QCD from your own IRA for a total of $200,000. Remember, a QCD facilitates the donation of your RMDs to offset taxable income. While you can donate more than your annual RMD (so long as it’s below the $100,000 threshold), the excess amount doesn’t roll over and can’t count for your next year’s deduction. Before you donate more, consider how your gift fits into a multi-year strategy. To take full advantage of the deduction, it could make sense to spread the donation over several years. Your donation must be to a qualified 501(c)(3) charity. Private foundations, supporting organizations, and DAFs don't count. By initiating a QCD, you can’t claim the value of the distribution as a separate charitable deduction. Keep in mind that a QCD isn’t a taxable distribution, so deducting it would result in a double benefit. However, since a QCD isn’t a deduction, you don’t have to itemize to benefit from it. That's significant if you take the standard deduction. The SECURE Act pushed the maximum age to contribute to an IRA from 70 ½ to 72. This presents a special circumstance to be aware of if you plan to take advantage of the ability to contribute to an IRA after age 70 ½. Any contributions you make into your IRA after age 70 ½, reduce the amount you can donate as a QCD, and that reduction does carry forward. Again, work with your advisor to plan how these changes will impact your QCD and RMD strategy over several years. How does this giving strategy add value? Reducing taxable income may help decrease federal tax liabilities , which is certainly a plus, but what a lot of people don't know is that lower taxable income could also lead to additional tax savings. Some of the main benefits of a lower taxable income are reducing taxes on Social Security as well as Medicare Part B and IRMAA surcharge since these elements are based on your taxable income. Part B Surcharges can range from $0 to $347 extra per month and Part D from $0 to $76.40 extra per month. As you can see, reducing your taxable income with a QCD can have a cumulative effect on many other aspects of your financial plan. Paying less in these areas frees up money to donate more, reach a goal, pay off debt, or even improve your lifestyle. As part of a planning strategy, keep in mind the CARES Act suspended RMDs for 2020, so if you are planning to make a one-time donation, you may want to wait until January 2021. Even if you normally make a donation, but it’s below the QCD limit, it could make sense to make this year's and next year’s normal donation in 2021 so you can reduce next year's RMD further. There are many ways that a QCD can benefit you, and in turn the causes you care about. Multi-year QCD planning could help you take full advantage of tax reductions and significantly increase the value of your donation. Can a Qualified Charitable Distribution improve your giving plan? Download this helpful guide to see if you are eligible to make a QCD. If you have questions about how QCDs could fit into the bigger picture for you contact us , and we’ll help assess if it’s right for you and how to best incorporate QCDs into your plan. Mark Fonville, CFP® Mark is a CERTIFIED FINANCIAL PLANNER and advises individuals and families age 50 plus on retirement income planning, tax planning, and investment management strategies. He has over 18 years of experience and is President of Covenant Wealth Advisors , an award winning wealth management firm in Richmond and Williamsburg, VA. Schedule a free intro call with Mark Disclosures: Covenant Wealth Advisors is a fee-only, registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Registration of an investment advisor does not imply a certain level of skill or training.