One of the basic truths we all learn early in life is that our actions carry consequences. What often takes longer to learn is that some consequences are intended, and some are unintended. In the financial world, our complex tax code provides many examples of how actions taken in one area can have unintended consequences in other areas. Here are two examples I came across recently:

• I was a participant in a webinar as a part of my continuing education plan. Another financial professional attending this event wanted to know why his client received an unexpected tax bill for a few thousand dollars on their 2022 tax return. This professional knew his client was in the 0% tax bracket for long-term capital gains and recommended that they realize some capital gains in an investment since the professional assumed those gains would be taxed at 0%. However, the professional realized too many gains, with the unintended consequence of the client being kicked into a higher bracket and being subjected to additional tax.
• A person in the real estate business had a high-income year in 2021 when the housing market experienced its post-COVID boom. The unintended consequence was that this person’s Medicare Part B premiums doubled for 2023, due to an often-forgotten rule known as the income-related monthly adjustment amount (IRMAA). This causes Medicare Parts B and D premiums to be adjusted for incomes over certain thresholds.

Actions always carry consequences. As a result, through our Total Wealth Management planning process, our goal is to create and implement beneficial planning strategies while keeping the impact of unintended consequences to a minimum.

What have you learned from experiencing the effects of unintended consequences in your own life? We love hearing from you!