According to a recent article published by Kiplinger in December 2022, it's important for retirees and soon-to-be retirees to consider the impact of year-end tax and investment decisions on their Social Security benefits. For example, if retirees have substantial taxable income in a given year, it can result in higher taxes on their Social Security benefits. On the other hand, by making strategic investment decisions before year-end, retirees can reduce their taxable income and potentially avoid higher taxes on their Social Security benefits. This information is particularly relevant to our target audience of FedEx workers looking to retire and existing retirees who may be looking for ways to optimize their retirement income.
What Are Year-End Investment Decisions?
Numerous FedEx customers have concerns concerning tax planning and end-of-year investment decisions. Tax planning may enable you to control the timing and manner in which you report your income and claim your deductions and credits, whereas year-end investment decisions may result in substantial tax savings. The fundamental year-end planning strategy that we would like to share with our FedEx clients revolves around timing — timing your income so that it is taxed at a lower rate, and timing your deductible expenses so that they can be claimed in years when you are in a higher tax bracket. In terms of investment planning, investing in capital assets may increase your ability to time the recognition of a portion of your income and enable you to take advantage of potentially lower-than-normal income tax rates. You have the option to determine when the income or loss from a variety of investment assets is recognized. In most cases, you decide when to sell your capital assets, but FedEx clients should be aware that shifting prospective capital gain income to other taxpayers through gifting may be an appropriate strategy in certain circumstances.
How Do You Use The Capital Gains Tax To Lower Your Taxes?
Our FedEx clients frequently inquire about capital gains tax deductions. Capital gains and losses are taxed in a unique manner. Currently, the maximum long-term capital gains tax rate (for most asset categories) is 20%, while the maximum ordinary income tax rate is 37% — a difference of 17%. It is essential for our FedEx customers to remember that converting ordinary income to long-term capital gain income may result in a reduction of your federal income tax liability.
Tip: Long-term capital gains are generally taxed at special capital gains tax rates of 0%, 15%, and 20% depending on your taxable income. The actual process of calculating the tax on long-term capital gains and qualified dividends is extremely complicated and depends on the amount of your net capital gains and qualified dividends and your taxable income.
Additionally, the 3.8% net investment income tax applies to some or all of your net investment income (including capital gains) if your modified adjusted gross income exceeds $200,000 for single or head of household filers, $250,000 for married taxpayers filing jointly, or $125,000 for married taxpayers filing separately.
Timing Your Capital Gain Recognition
If our FedEx clients time the sale of their capital assets judiciously, they may be able to reduce their federal income tax liability. If it's late in the year and you want to sell a capital asset, you can wait until January to do so (assuming you have a calendar tax year) so that you realize your capital gain or loss the following year. This strategy is particularly advantageous for our FedEx clients who are in a higher marginal tax bracket this year and anticipate being in a lower bracket next year. Capital gain income increases your adjusted gross income (AGI), so timing can also be crucial. Depending on your AGI, the quantity and availability of certain tax benefits may vary. For example, the itemized deduction for medical expenses is only available if medical expenses exceed 7.5% of adjusted gross income.
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Plan Your Year-End Capital Gain And Loss Status
We also advise our FedEx clients to schedule the recognition of capital losses. Any FedEx client who anticipates a capital gain this year should evaluate their portfolio for potential capital losses that could be used to offset the gain. If you are an FedEx client with capital loss carryforwards, you should evaluate your portfolio for capital gain opportunities that can be utilized with these carryforwards. In general, net capital losses are deductible dollar-for-dollar against net capital gains. Annually, excess losses may be used to offset up to $3,000 ($1,500 for married individuals submitting separate tax returns) of ordinary income. In excess of the limit, losses can be carried forward indefinitely.
The following strategies may be appropriate:
- Sell a property with a capital gain before the end of the year if your capital losses for the year exceed the sum of your capital gains plus $3,000 ($1,500 for married taxpayers submitting separate returns).
- For our FedEx clients whose annual gains exceed their losses, we should advise them to sell properties with built-in losses to mitigate their excess gains.
- If your other allowable deductions for the year exceed your income, you should avoid incurring further capital losses as much as possible.
- If you've owned an investment for close to a year and wish to sell it, you should wait (if feasible). If you hold an asset for over a year before selling it, you can take advantage of the reduced long-term capital gains rates.
How Do You Select Investments To Control Income?
You may choose investments likely to generate ordinary income, such as interest, or income subject to reduced tax rates (certain qualified dividends or long-term capital gains). You can also choose investments with a high probability of producing ordinary or capital losses. You can determine when your investment income is taxed, keeping in mind that income distributions are generally not taxed until they are received (assuming you use the cash method of accounting). By understanding the tax laws, our FedEx customers can reduce their taxes.
What about Shifting Income?
Through gifts, it may be possible to transfer prospective capital gains to other taxpayers. For FedEx clients in a higher tax bracket, transferring appreciated assets to relatives in a lower tax bracket may be advantageous.
Conclusion
Just as a marathon requires consistent training and preparation over time, retirement requires a long-term plan that includes saving and investing wisely. Both require setting goals, building endurance, and staying on track to achieve those goals. Just as runners need to stay focused and motivated to cross the finish line, retirees need to stay focused on their financial goals and make adjustments along the way to ensure a successful retirement.
What are the implications of the Funding Target Attainment Percentage for FedEx Corporation employees, and how does it impact the security of the pension benefits offered by FedEx Corporation? This question seeks to explore the nuances of the funding target attainment percentage as reported in the annual funding notice, examining how this metric not only reflects the financial health of FedEx Corporation's pension plan but also how it affects employee confidence in future benefit payments and retirement planning.
Funding Target Attainment Percentage: The Funding Target Attainment Percentage for FedEx Corporation indicates the degree to which the pension plan is funded. A percentage of 101.33% for 2022 suggests that the plan has sufficient assets to cover its liabilities, providing security for employees' pension benefits. This high percentage likely increases employee confidence in the stability and reliability of their future pension payouts, essential for long-term retirement planning.
How does the merger of the FedEx Freight Pension Plan into the FedEx Corporate Employees’ Pension Plan influence the benefits currently available to FedEx Corporation employees? This question aims to delve into the practical changes that may arise due to this merger, assessing whether it aligns with employee expectations regarding their pension benefits and how the transition process is managed by FedEx Corporation.
Merger of Pension Plans: The merger of the FedEx Freight Pension Plan into the FedEx Corporate Employees’ Pension Plan appears to have been strategically managed to maintain benefit stability. Despite increasing liabilities by 5.3%, the merger was structured to ensure no negative impact on the benefit amounts payable to participants from either plan, preserving the expected pension benefits for all affected FedEx Corporation employees.
In terms of investment strategies, what measures does FedEx Corporation implement to ensure that its pension plan investments align with the long-term liabilities expected to be paid out to retirees? This question encourages an exploration of the investment policies in place, examining the asset allocations and risk management strategies that FedEx Corporation employs to ensure sustainable funding for its pension obligations, which could potentially include detailed analyses of stocks, debts, and alternative investments.
Investment Strategies: FedEx Corporation employs a diversified investment strategy across equities, fixed income, and alternative investments, aiming to meet long-term pension liabilities. This approach, which includes both active management strategies and the limited use of derivatives, is designed to generate returns that exceed market indices, thus ensuring adequate funding of pension obligations.
What options do employees of FedEx Corporation have for accessing their pension plan statements, and how frequently are these statements generated? The focus here is to understand the communication strategies employed by FedEx Corporation regarding pension benefit statements, including technological access points and the importance of these documents for employee financial planning.
Pension Plan Statements: FedEx Corporation provides annual pension plan statements through their Retirement Service Center, available electronically each fall. Employees can access their statements online or request them if notifications are not received, ensuring transparency and aiding in personal financial planning.
How are contributions to the FedEx Corporation Employees’ Pension Plan determined, and what role do excess contributions play in the plan's overall funding strategy? This question aims to educate employees about how the company balances mandatory contribution levels with potential excess contributions, exploring how these factors interact to influence the plan's solvency and employee benefits.
Contributions to the Pension Plan: Contributions to the FedEx Corporation Employees' Pension Plan are calculated to meet at least the minimum legal requirement and potentially include voluntary excess contributions. These excess contributions can help manage the plan's funding level and ensure its solvency, benefiting overall pension security for employees.
What types of benefits are guaranteed under the Pension Benefit Guaranty Corporation (PBGC) for FedEx Corporation employees, and what limitations exist that employees should be aware of? By focusing on the guaranteed benefits, this question prompts a discussion on the security of specific benefits provided by FedEx Corporation and highlights limitations, allowing employees to understand their rights fully.
PBGC Guarantee: The Pension Benefit Guaranty Corporation guarantees certain types of benefits for FedEx Corporation employees, such as pension benefits at normal retirement age and most early retirement benefits. However, there are limitations, such as exclusions for benefits without vested rights and recently increased benefits, which employees should be aware of to fully understand their pension security.
In what ways does the FedEx Corporation plan to adjust its pension funding strategy in light of changing federal laws that impact pension obligations? Employees are encouraged to consider how legislative changes influence corporate policies surrounding retirement benefits and the proactive strategies FedEx Corporation might take to remain compliant while ensuring the security of employee pensions.
Adjustments to Funding Strategy: FedEx Corporation is likely to adjust its pension funding strategy in response to legislative changes affecting pension obligations, such as those introduced by recent acts adjusting how pension liabilities are calculated. This proactive approach aims to ensure compliance with new laws while continuing to secure the financial health of the pension plan.
What are the steps that FedEx Corporation employees must take if they are considering retirement, particularly in how to navigate the pension plan and gain access to their benefits? This question aims to provide clarity on the retirement process, ensuring that employees are equipped with the necessary information regarding required documentation, timelines, and points of contact within FedEx Corporation.
Steps for Retirement Planning: Employees considering retirement should contact the FedEx Retirement Service Center to navigate their pension plan benefits. This process involves understanding necessary documentation, timelines, and available support, facilitating a smooth transition into retirement.
How does FedEx Corporation plan to manage potential funding shortfalls in the pension plan, and what mechanisms are in place for notifying plan participants should such an event occur? Employees would need to understand the proactive measures put in place by FedEx Corporation to address funding-related challenges while also knowing what this means for their benefits.
Managing Funding Shortfalls: In the event of potential funding shortfalls, FedEx Corporation has policies in place to manage such situations, including strategic contributions to mitigate shortfalls. The company maintains transparency with plan participants about funding levels and any significant changes affecting the pension plan.
For those seeking more information about their pensions and retirement options, how can FedEx Corporation employees contact relevant departments, and what resources are available for assistance? This question provides an opportunity for employees to familiarize themselves with contact points such as the FedEx Retirement Service Center, emphasizing the importance of open communication channels for addressing inquiries related to their pensions. Feel free to consult the provided document for more in-depth exploration of these topics.
Contacting for Pension Information: FedEx Corporation employees seeking more information about their pensions or retirement options can contact the FedEx Retirement Service Center. This center provides essential resources and support, ensuring employees have access to all necessary information regarding their retirement planning.
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