Essential Year-End Tax and Investment Strategies for USG Corporation Employees to Consider Now

What Are Year-End Investment Decisions?

Many of our USG Corporation clients have questions regarding tax planning and year-end investment decisions. Year-end investment decisions may sometimes result in substantial tax savings, while tax planning may allow you to control the timing and method by which you report your income and claim your deductions and credits. The basic strategy for year-end planning that we'd like to share with our USG Corporation clients all comes down to timing — timing your income so that it will be taxed at a lower rate, as well as timing your deductible expenses so that they may 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 some of your income and may help you to take advantage of potentially lower-than-ordinary income tax rates. You have the flexibility to control when you recognize the income or loss on many types of investment assets. In most cases, you determine when to sell your capital assets, but we'd still like our USG Corporation clients to keep in mind that in some cases, shifting potential capital gain income to other taxpayers through gifting may be an appropriate strategy.

How Do You Use The Capital Gains Tax To Lower Your Taxes?

Our USG Corporation clients often ask us about using capital gains to lower taxes. Capital gains and losses are accorded special tax treatment. Currently, the top long-term capital gains tax rate is 20% (for most types of assets), while the top ordinary income tax rate is 37% — that's a 17% difference. It's important for our USG Corporation clients to remember that as a potential consequence, by converting ordinary income to long-term capital gain income, it may be possible to reduce 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.

In addition, 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 taxpayers, $250,000 for married filing jointly, or $125,000 for married filing separately.

Timing Your Capital Gain Recognition

If our USG Corporation clients make sure to carefully time when they sell capital assets, this may help to reduce their federal income tax liability. For example, if it's late in the year and you want to sell a capital asset, you can wait until January to sell it so that you realize your capital gain or loss next year (assuming that you have a calendar tax year). This strategy is particularly useful for our USG Corporation clients who are in a higher marginal tax bracket in the current year and expect to be in a lower one in the following year. Timing can also be important because capital gain income increases your adjusted gross income (AGI). The amount and availability of certain tax benefits may depend on the amount of your AGI. For example, the itemized deduction for medical expenses is available only to the extent that medical expenses exceed 7.5% of AGI.

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Plan Your Year-End Capital Gain And Loss Status

We also recommend that our USG Corporation clients plan the time when they recognize capital losses. For any of our clients from USG Corporation who expect to recognize a capital gain this year, you should review your portfolio for possible capital losses that can be used to offset the gains. For any of our USG Corporation clients who have any capital loss carryforwards, you should review your portfolio for capital gain opportunities to make use of such carryforwards. In general, net capital losses are deductible dollar-for-dollar against net capital gains. Excess losses are allowed to offset up to $3,000 ($1,500 for individuals filing married filing separate tax returns) of ordinary income per year. Losses over and above the limit may be carried forward indefinitely.

The following strategies may be appropriate:

Sell capital gain property before the end of the year if you have already realized capital losses for the year that exceed the sum of any capital gains you have realized plus $3,000 ($1,500 for individuals filing married filing separate tax returns).
For our USG Corporation clients who have gains for the year that exceed their losses, sell property with built-in losses to offset the excess gains.
If your other allowable deductions for the year exceed your income, you should, to the extent possible, avoid realizing any further capital losses for the year.
If you've held a capital asset for close to 12 months and want to sell it, wait awhile (if possible). You can take advantage of the lower long-term capital gains rates if you hold the asset for over 12 months before selling it.

How Do You Select Investments To Control Income?

You can select investments likely to produce ordinary income such as interest, or income that is taxed at reduced rates (certain qualifying dividends or long-term capital gains). You can also select investments likely to produce ordinary or capital losses. You can control when your investment earnings are taxed, bearing in mind that income distributions are generally not taxed until you receive them (assuming that you use the cash method of accounting). By our USG Corporation clients knowing the tax rules, they can lower their taxes.

What about Shifting Income?

It may be possible to shift potential capital gains to other taxpayers through gifts. For our USG Corporation clients who are in a higher tax bracket, you might transfer appreciated assets to relatives in lower tax brackets.

How does the retirement plan structure at USG Corporation impact both final average earnings participants and cash balance participants, especially regarding their eligibility and benefits accrued over time? In what ways does the differentiation between these two categories influence the retirement outcomes for employees of USG Corporation?

Retirement Plan Structure: USG Corporation's retirement plan differentiates between Final Average Earnings Participants and Cash Balance Participants. Final Average Earnings participants, who joined before January 1, 2011, accrue benefits based on their final average earnings and years of service, which can result in higher benefits for longer-serving employees. Cash Balance participants, who joined after January 1, 2011, have their benefits calculated based on a cash balance account, which grows with contributions and interest credits. These differences affect retirement outcomes, as Final Average Earnings participants may see higher pension payments if they have longer service or higher wages, while Cash Balance participants have more predictable but potentially lower benefits based on their account balance(USG Corporation_Retirem…).

USG Corporation's Retirement Plan allows for different age-specific rules regarding early retirement. How do the "Rule of 90" and "Rule of 82" affect the financial planning of employees considering an early retirement option, and what should they consider regarding their long-term financial security?

Rule of 90 and Rule of 82: The "Rule of 90" allows employees to retire early without a reduction in benefits if their age plus years of service total 90, provided they retire at or after age 62. The "Rule of 82" permits early retirement with reduced benefits for those whose age and years of service total 82. Employees planning early retirement must consider these rules as they directly affect the amount of benefits they receive, making it important to assess how long-term financial security will be impacted, especially if they retire before age 62(USG Corporation_Retirem…).

Could you elaborate on the process through which employees at USG Corporation can change their beneficiaries within the retirement plan? What steps need to be taken, and what are the implications of these changes on the benefits received upon the participant's death?

Changing Beneficiaries: To change beneficiaries, USG Corporation employees must contact Your Benefits Resources™, where they can designate a primary and contingent beneficiary. If married, the spouse must provide notarized consent to name a different primary beneficiary. The process involves completing a form, and any changes affect who receives benefits upon the participant's death. Failing to update the beneficiary could result in benefits being paid to unintended individuals(USG Corporation_Retirem…).

As part of the retirement process at USG Corporation, how are pensionable earnings calculated? What factors are included in this determination, and how might they vary among different employees based on their roles within the organization?

Pensionable Earnings Calculation: Pensionable earnings at USG Corporation include regular pay, shift differentials, and bonuses but exclude items like nonqualified deferred compensation, severance, and stock awards. These earnings are used to calculate benefits based on formulas that take into account an employee’s service years and earnings over the 36 highest consecutive months of the last 15 years of participation(USG Corporation_Retirem…).

How does the automatic enrollment in the USG Corporation Retirement Plan work, and what options do employees have if they initially chose not to participate? What implications might this have for their retirement savings strategy?

Automatic Enrollment and Opting In: Employees at USG Corporation are automatically enrolled in the retirement plan unless they choose to opt out. If employees decide not to participate initially, they can enroll later by contacting Your Benefits Resources™. Failure to participate from the start could result in lower retirement savings due to fewer years of contributions(USG Corporation_Retirem…).

In the context of USG Corporation, what are the potential tax consequences for employees withdrawing their retirement benefits, especially regarding the mandatory withholdings? How might employees effectively manage these tax liabilities when planning for retirement?

Tax Consequences of Withdrawals: Employees withdrawing their retirement benefits from USG Corporation will face mandatory federal income tax withholdings, typically 20% for lump sum distributions, unless the distribution is rolled over into an IRA. Employees must plan for these taxes when withdrawing to avoid unexpected liabilities and ensure they maximize their after-tax retirement income(USG Corporation_Retirem…).

How do employees at USG Corporation access the necessary documents related to their retirement benefits, and what is the process for obtaining copies of these documents if needed? What are the responsibilities of the Plan Administrator in this process?

Accessing Retirement Documents: Employees can access documents related to their retirement benefits through Your Benefits Resources™ online or via phone. If additional copies are needed, employees can request them from the Plan Administrator for a small fee. The Plan Administrator oversees ensuring these documents are provided to participants as required by ERISA(USG Corporation_Retirem…).

What unique provisions exist for USG Corporation employees who experience a break in service? How do these provisions impact their accumulated benefit service and overall benefits upon reemployment?

Break in Service Provisions: USG Corporation allows employees who experience a break in service to retain their accumulated benefits if they are reemployed within one year. If reemployed after one year, their previous service may not count toward future benefits unless they were vested prior to termination. This can affect the total benefits an employee accrues if they leave and later return(USG Corporation_Retirem…).

What options do employees of USG Corporation have for managing their benefits if they return to work after retirement? How does this affect their pension benefits and the overall strategy for maximizing retirement income?

Returning to Work After Retirement: Employees returning to work after retirement at USG Corporation will have their pension payments suspended and recalculated based on additional years of service. This recalculation takes into account prior payments, meaning employees should consider the impact of returning to work on their long-term pension strategy(USG Corporation_Retirem…)(USG Corporation_Retirem…).

How can employees of USG Corporation contact their Benefits Resourcesâ„¢ for more information on their retirement plan options? Are there specific channels preferred for different types of inquiries, and what resources are available to assist them?

Contacting Benefits Resources™: Employees can contact Your Benefits Resources™ via the web or a toll-free number to inquire about retirement plan options. Different inquiries, such as changes to beneficiaries or requesting benefit estimates, can be handled through these channels. Resources such as detailed benefit estimates are available to help employees plan for retirement(USG Corporation_Retirem…).