Tax strategies for the current landscape Not FDIC

Tax strategies for the current landscape Not FDIC insured May lose value No bank guarantee Maximizing planning opportunities for the current tax landscape 304436 12/16

Tax strategies for the current landscape Topics for today 1. Understanding the current landscape 2. Planning considerations and strategies PPT 300 324796 1/21 2

Understanding the current landscape PPT 300 324796 1/21

Tax strategies for the current landscape Favorable tax environment for most • Lower marginal tax rates • Scale back of popular deductions means the overwhelming majority of taxpayers claim the standard deduction • Alternative minimum tax (AMT) no longer an issue for most taxpayers • Favorable estate and gift tax environment — but what about the future? • Uncertainty on tax rates after 2025 … or before? PPT 300 324796 1/21 4

Tax strategies for the current landscape Key tax figures for 2021 Ordinary income tax rates 10%, 12%, 24%, 32%, 35%, 37% Long-term capital gain and qualified dividend tax rates 0%, 15%, 20% Net investment income surtax 3. 8% ($200, 000 single, $250, 000 couples) Standard deduction $12, 550 (single), $25, 100 (couples) SALT deduction Capped at $10, 000 Mortgage interest deduction Limited to $750, 000 of aggregate debt* Charitable deduction Max of 100% of AGI in one tax year Maximum salary deferral to retirement plan $19, 500 ($26, 000 if age 50 and older) Maximum contribution to IRA $6, 000 ($7, 000 if age 50 and older) *Homes under agreement before 12/15/17 for purchase prior to 1/1/18 (provided purchase occurred by 4/1/18) grandfathered under previous limit of $1, 000. PPT 300 324796 1/21 5

Tax strategies for the current landscape How do estate and gift taxes look for 2021? 18% to 40% Range of marginal tax rates on estates and gifts in excess of lifetime exemption amount $11. 7 million Lifetime gift and estate tax exemption $15, 000 Annual gifts to as many recipients without resulting in a taxable gift and reducing the lifetime exemption amount Portability Allows surviving spouse to utilize deceased spouse unused exemption (DSUE) PPT 300 324796 1/21 6

Tax strategies for the current landscape The SECURE Act may lead to higher taxes for heirs • Changes to IRAs – Required Minimum Distribution (RMD) age raised to age 72 – Traditional IRA contributions allowed past age 70½ • Repeal of the “Stretch IRA” – Non-spouse beneficiaries must liquidate inherited IRA 10 years after death of the account owner, instead of gradually taking withdrawals based on their remaining life expectancy* – No requirement to take annual withdrawals – May push heirs into higher tax bracket * Certain exceptions apply including (non-spouse) beneficiaries who are disabled, chronically ill, less than 10 years younger than deceased IRA owner, and minor children (though the 10 -year rule applies once minor child of deceased IRA owner reaches age of majority). PPT 300 324796 1/21 7

Tax strategies for the current landscape Could we see more changes to retirement accounts? • Increase in the RMD age to 75 • Additional catch-up contribution at age 60 • Expansion of Qualified Charitable Distributions ($130, 000 annually, available from retirement plans, one time to charitable trust/gift annuity) • Employer match for ”qualified student loan payments” The Securing a Strong Retirement Act of 2020, Expanding Coverage and Increasing Retirement Savings; section-by-section summary. PPT 300 324796 1/21 8

Tax strategies for the current landscape Risk of higher taxes? 1. Change in the political landscape following 2020 elections 2. Expiration of tax provisions at the end of 2025 3. Fiscal pressures facing the federal government PPT 300 324796 1/21 9

Tax strategies for the current landscape Fiscal pressures drive need for more revenue? $3. 1 T 2020 annual budget deficit, highest ever $ 72% percentage of government spending devoted to mandatory programs + interest 17. 3% 16. 4% percentage of revenue/GDP, 50 -year average is 17. 3% 2034 Social Security trust fund depleted Sources: Congressional Budget Office (CBO), 2020; 2020 Social Security Trustees Report. PPT 300 324796 1/21 10

Tax strategies for the current landscape Potential tax increases being discussed • Restore top rate of 39. 6% at higher incomes ($400 K+) • Tax investment income as ordinary income (incomes over $1 million) • Apply Social Security payroll taxes once earnings exceed $400, 000 • Limit benefit of tax deductions at 28% bracket, restore Pease limitation, repeal TCJA SALT cap of $10, 000 • Tax credit instead of deduction for retirement contributions • Limit stepped-up cost basis at death Tax provisions proposed by the Biden campaign during the 2020 election. PPT 300 324796 1/21 11

Planning considerations and strategies PPT 300 324796 1/21

Tax strategies for the current landscape Actionable planning strategies 1. How to maximize popular deductions 2. Take advantage of lower tax brackets 3. Estate planning under the new law – Preserve step-up in cost basis at death – Take advantage of the increased annual exemption amount – Planning as a result of the SECURE Act PPT 300 324796 1/21 13

Tax strategies for the current landscape Consider “lumping” charitable gifts Assumptions: H & W, age 65, who donate $10, 000 annually to charity; other deductions include $10, 000 for SALT and $7, 000 for mortgage interest; their marginal income tax bracket is 22% 2021 2022 2023 ANNUAL GIFTS $10, 000 “LUMP” GIFTS $30, 000 NO GIFT Result: With annual gifting their total deductions = $83, 400 ($27, 800 x 3 years); by lumping gifts, their total deductions = $102, 600 ($47, 000 + $27, 800, resulting in a difference of $19, 200 for a tax savings of approximately $4, 000, assuming a 22% marginal tax bracket Example is based on 2020 IRS figures and does not account for higher standard deduction in 2021 and 2022 due to annual inflation adjustments. PPT 300 324796 1/21 14

Tax strategies for the current landscape Donate IRA assets to a charity • Requirements – Must be age 70½ or older – Distribution must be sent directly to a qualified charity – Limit of $100, 000 annually per IRA owner and can include the required minimum distribution (RMD) • Benefits – Tax-free RMD lowers AGI — may have beneficial impact in other tax areas such as taxation of Social Security benefits or Medicare Part B premiums – Avoids AGI threshold for charitable gifts – May benefit state taxes since some states do not allow residents to deduct a charitable contribution – May benefit legacy planning by preserving assets, which may benefit from step-up in cost basis while the IRA is taxable to heirs PPT 300 324796 1/21 15

Tax strategies for the current landscape Lower tax rates benefit Roth IRA conversions TCJA (2018) $600, 000 37% 35% $400, 000 $315, 000 $250, 000 Potential $165, 000 Roth IRA conversion opportunity? $77, 400 PREVIOUS (2017) 32% 24% 22% 39. 6% 35% $480, 050 $424, 950 33% 28% 25% $237, 950 $156, 150 $77, 400 12% 15% $19, 050 10% Chart based on 2018 income tax brackets for married couples filing a joint return established by the Tax Cuts and Jobs Act (TCJA) compared with 2017 income tax brackets. PPT 300 324796 1/21 16

Tax strategies for the current landscape Roth accounts can hedge the risk of higher taxes in the future • Consider tactical Roth IRA conversions to “top-off” tax brackets or during years when income is lower or deductions are higher • Do Roth 401(k) contributions make sense? • There may be alternative ways to fund Roth accounts even if income is higher PPT 300 324796 1/21 17

Tax strategies for the current landscape Estate planning considerations • Review existing trusts to determine if changes are needed • Be mindful of state death taxes • Plan for low cost-basis property – Ensure stepped-up cost basis is maintained when property is transferred at death • HNW families may want to consider a gifting strategy for the additional lifetime exclusion amount • Work with an estate planning professional to account for the potential “sunset” of the law in 2026 PPT 300 324796 1/21 18

Tax strategies for the current landscape Gifting now before the law sunsets Basic exclusion amount (BEA) $11. 7 M $6 M additional gift exclusion $5. 49 M 2017 2021 $19 M Annual growth over 20 years @ 6% Federal estate tax savings of $7. 6 M Higher-net-worth families may see this as an opportunity since the estate and gift tax figures are scheduled to revert to 2017 levels after 2025 Hypothetical example assuming an estate tax rate of 40%. PPT 300 324796 1/21 19

Tax strategies for the current landscape Planning for the new 10 -year rule on inherited retirement accounts • Careful designation of beneficiaries – Spouses who can still “stretch” or those who may be in lower tax brackets when inheriting the IRA • Tax-efficient timing of IRA distributions for heirs – When does it make sense to withdraw over the 10 -year period? – Do Roth conversions while account owner is living make sense? • Advanced strategies to consider – Leaving the IRA to a Charitable Remainder Trust (CRT) – Life insurance as a way to leave an income & estate tax-free legacy to the next generation PPT 300 324796 1/21 20

Tax strategies for the current landscape Estate planning is more than just the taxes! Wills, beneficiary designations Critical to review and update periodically Revocable living trust Transfers property outside of the probate system Health-care proxy and advanced medical directive Facilitate decisions around medical treatment or end-of-life wishes Power of attorney Assigns decision-making responsibilities in case of unforeseen circumstances Guardianship Planning for minors or other extended family members PPT 300 324796 1/21 21

Considerations for business owners PPT 300 324796 1/21

Tax strategies for the current landscape Deduction for small business owners • Applies to businesses that are structured as pass-through entities for taxation purposes (sole proprietorship, LLC, partnership, S Corp) • 20% on qualified business income (QBI), cannot include compensation or investment income • At higher income levels, specified service trade or businesses (SSTBs) are not allowed to take the deduction – According to the law, “A specified service activity means any trade or business activity involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, any trade or business where the principal asset of such trade or business is the reputation or Source: Joint Explanatory Statement the Committee of Conference. skill of one orofmore of its employees, or investing, trading, or dealing in securities, partnership interests, or commodities. ” PPT 300 324796 1/21 23

Tax strategies for the current landscape How the 20% QBI deduction works Taxable income (Single) (Married, filing jointly) Deduction fully subject to wage limitation* No deduction $214, 900 $164, 900 $429, 800 Deduction available, wage limitation begins to be phased in* Income phaseout applies — partial deduction available 20% deduction $0 $329, 800 $0 Non-specified service business Specified service business * The wage limitation refers to an alternate test that must be applied to determine the deduction for QBI (for non-specified service businesses) when taxable income exceeds $163, 300 for individuals and $326, 600 for couples. The alternate test is the greater of (a) 50% of total wages paid by the business or (b) 25% of wages plus 2. 5% of unadjusted cost basis of qualified property. PPT 300 324796 1/21 24

Tax strategies for the current landscape Closing thoughts • Most taxpayers are benefitting from relatively favorable tax policy currently • Careful consideration must be taken to hedge the risk of taxes increasing in the future • Work with professionals to assess income and estate tax planning strategies PPT 300 324796 1/21 25

Tax strategies for the current landscape All funds involve risk, and you can lose money. This information is not meant as tax or legal advice. Please consult your legal or tax advisor before making any decisions. For informational purposes. Not an investment recommendation. Investors should carefully consider the investment objectives, risks, charges, and expenses of a fund before investing. For a prospectus, or a summary prospectus if available, containing this and other information for any Putnam fund or product, call your financial representative or call Putnam at 1 -800 -225 -1581. Please read the prospectus carefully before investing. Putnam Retail Management putnam. com PPT 300 324796 1/21 26