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Not FDIC Insured

May Lose Value

No Bank Guarantee

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Topics for today• The current tax landscape• A longer-term outlook on taxes• Planning considerations

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The current tax landscape

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It’s important to determine your tax bracket

SingleMarried filing

jointly Income

Capital gains

and dividends

$0–$9,225 $0–$18,45010%

0%

$9,226–$37,450 $18,451–$74,90015

0

$37,451–$90,750 $74,901–$151,20025

15

$90,751–$189,300$151,201–$230,450 28

15

$189,301–$411,500$230,451–$411,500 33

15

$411,501–$413,200$411,501–$464,850 35

15

Over $413,200 Over $464,85039.6%

20%

2015 IRS tax brackets and rates.

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Income phaseouts can increase your tax bill

Income phase-outs based on 2015 IRS figures.

• Above higher income levels ($258,250 for individuals, $309,900 for couples), the benefit from itemized deductions and personal exemptions is limitedItemized deductions

Reduced by 3% of the amount above the income threshold (maximum of 80% phaseout)

Personal exemptions

Reduced by 2% for every $2,500 of income above the threshold.

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New health-care taxes took effect in 2013

• Affects taxpayers with more than $200,000 in income ($250,000 for couples)

• Increase in the individual portion of the Medicare payroll tax on wages from 1.45% to 2.35%

• New Medicare net investment income surtax of 3.8%

– Interest, dividends, capital gains, rental income, passive business income all subject to the new tax

– Interest from municipal bonds and distributions from retirement accounts are excluded

The threshold for the 3.8% net investment income surtax is based on modified adjusted gross income (MAGI), defined as adjusted gross income plus net foreign income exclusion amount. The extra .9% Medicare payroll tax is based on earned income only (salary, wages, etc.).

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$50KMuni income

Married couple with income over $250K: How does the new 3.8% surtax work?

$150KSalary

$50KIRA income

$100K

Cap gain

Not subject to 3.8% surtax

$250K income threshold (MAGI)

$50K cap gain subject to surtax

$50K cap gain not subject to surtax

Simplified, hypothetical example designed to illustrate how the new Medicare net investment income surtax is applied. Beginning in 2013, the surtax applies to individuals with MAGI over $200,000 and married couples filing joint tax returns with MAGI over $250,000. MAGI defined as Adjusted Gross Income (AGI) plus net foreign income exclusion amount.

Not subject to the surtax but is included in determining the $200K/$250K income threshold

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Key income thresholds to consider

Individuals Couples

$200K

$258K

Highest income, capital gain, and dividend rates

$250K

$309K

New health-care taxes

Phaseout of deductions and exemptions

$413K $464K

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Will you owe AMT?

Income level Chance of owing AMT

$100K–$200K 2%

$200K–$500K 48

$500K–$1M 78

> $1M 36

Urban-Brookings Tax Policy Center, September 2012.

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Understanding the AMTWhat is the alternative minimum tax (AMT)?

A separate, parallel income tax system introduced in 1969 to make sure a small number of very wealth taxpayers owed tax

How many taxpayers are subject to AMT?

Since the system was not properly indexed for inflation, more than 4 million taxpayers pay AMT now*

How many AMT tax brackets are there?

Just two — 26% on first $185,400 of AMT income, 28% thereafter

What are some popular

tax breaks disallowed for AMT?

Personal exemptions, standard deduction, state and local income and property taxes, miscellaneous 2% deductions, interest on second mortgages

* Urban-Brookings Tax Policy Center, August 2013.

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Federal estate and gift taxes — key figures18% to 40% Range of marginal tax rates on

estates and gifts in excess of lifetime exemption amount

$5.43 million Lifetime gift and estate tax exemption

$14,000 Annual gifts to as many recipients without resulting in a taxable gift and reducing the lifetime exemption amount

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Estate planning is more than just the taxesWills, 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

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Longer-term outlook on taxes

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Total debt remains high based on historical norms

Source: Congressional Budget Office, Updated Budget Projections: August 2014; does not include intra-governmental debt.

1940

1941

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1998

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2001

2002

2003

2004

2005

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2007

2008

2009

2010

2011

2012

2013

2014

0%

20%

40%

60%

80%

100%

Perc

en

tag

e o

f G

DP

Federal debt held by the public (% of GDP), 1940–2014

2014

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Annual deficits have improved but will worsen in a few years

Source: Congressional Budget Office, Updated Budget Projections: August 2014.

14

20

26

Perc

en

tag

e o

f G

DP

Historical federal government revenues and outlays (% of GDP), 1973–2024

1973

2024

Spending21.8%

Revenue18.2%

2014

(%)

Projected

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65%

U.S. federal government spending by type, 2014FY

Source: Congressional Budget Office, August 2014; Mandatory spending types primarily include Social Security, Medicare, and Medicaid, as well as interest on existing debt. Discretionary spending includes defense and non-defense items. “Other” mandatory items include certain veteran’s benefits, retirement benefits for federal employees, Supplemental Nutrition Assistance Program (SNAP), unemployment, and other government benefits less offsetting receipts.

Most government spending is on auto-pilot

Mandatory

Social Security$792B

Defense$626B 35%

Discretionary

Non-Defense$576B

Medicare$492B

Medicaid$274B Interest

$221B

Other$472B

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What would a longer-term debt solution look like?

• Tax reform to simplify the system– Less brackets and lower marginal tax rates, elimination or

significant reduction in tax preference items (popular deductions, tax credits, etc.)

• Steps to improve the solvency of major entitlement programs

• Potential changes to Social Security– Increase the wage base*– Increase the retirement age for younger workers– Utilize a different COLA formula for benefit increases– Reduce benefits for higher-income recipients (i.e., means

testing)* Social Security wage base for 2015 is $118,500.

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Planning considerationsand strategies

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Five income tax planning strategies to consider

1. Invest in municipal bonds to generate tax-free income

– Municipal bonds are more attractive for taxpayers in high tax brackets and also subject to the 3.8% Medicare surtax

2. Utilize strategies to reduce or avoid taxable income– Retirement plan contributions, college savings plans,

flexible spending accounts (FSAs), deferred compensation, maximizing tax deductions

– Be mindful of transactions that may drastically increase income

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Five income tax planning strategies to consider

3. Consider Roth strategies– Contributions or conversions to create a source of tax-free

income in retirement

4. Asset “location” – allocate investments by tax status– Hold a larger percentage of fixed-income assets within tax-

deferred accounts while owning equities in taxable accounts to benefit from lower capital gains and dividend tax rates

5. Make tax-smart withdrawals in retirement– Draw from tax-deferred accounts while in lower tax brackets,

and from taxable and tax-free accounts when tax bracket is higher

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Estate planning — Are federal estate taxes a concern?

• Make sure fundamental documents are in place• Plan for state death or inheritance taxes if necessary

$5.43M exemption amount

Gifting strategies to reduce estate

Life insurance to provide liquidity at death to pay taxes

Charitable planning

Advanced strategies such as FLPs to transfer illiquid assets

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Closing thoughts • With mounting federal deficits and pressures

around entitlement programs, there’s likely to

be uncertainty around taxes• Work with professionals to assess your

personal income and estate tax situation and identify potential strategies

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A BALANCED APPROACH

A WORLD OF INVESTING

A COMMITMENT TO EXCELLENCE

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This information is not meant as tax or legal advice.Please consult your legal or tax advisor before making any decisions.

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

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