Author: SynergiaFinancialGroup

Tax planning is an essential aspect of financial management, especially for individuals who have accumulated substantial wealth over their lifetime. Retirees, in particular, need to pay special attention to their tax planning strategies to help ensure they can address their retirement income and leave a significant legacy for their descendants. 
The substantial assets of many retirees often mean they bear a heavier tax burden than others. The key to reducing this tax liability lies in creating a strategic tax plan, utilizing various tax-efficient tools, and remaining agile in response to changes in tax laws. In addition, retirees may consider optimizing tax planning strategies, which include Roth conversions, tax-efficient investments, estate planning, trusts, and charitable planning.

1. Roth IRA conversions. Roth conversions are a quintessential consideration in a tax planning strategy. A Roth IRA allows for tax-free growth and distribution, affording retirees a tax-advantageous means of growing and accessing retirement funds. However, pre-tax assets must be converted into a Roth using a Roth conversion, which triggers a tax payable event. Retirees may find performing these conversions during lower-income years or market downturns beneficial to help mitigate the tax impact.

2. Tax-efficient investments Another crucial aspect to consider in tax planning is making tax-efficient investments. This strategy typically involves structuring your investment portfolio to take advantage of long-term capital gains tax rates, often lower than ordinary income tax rates. It may also include investing in tax-efficient assets such as index funds, ETFs, or tax-managed funds specifically designed to mitigate the investor’s tax liability.

3. Planning for taxes. Beyond income tax, retirees also must consider estate tax implications, as estates valued at or above the federal estate tax exemption level are subject to steep estate tax rates. Trusts, such as bypass or dynasty trusts, can be suitable strategies for minimizing estate tax liability and preserving wealth for future generations.

Additionally, charitable planning can be a valuable part of a tax planning strategy. Charitable donations not only help support worthy causes but can also provide substantial tax benefits, particularly for retirees. Donating appreciated assets directly to a charity can dodge capital gains tax, and a charitable remainder trust can provide an income stream for the donor while passing the remainder to charity, effectively reducing the estate tax liability.

Lastly, retirees must work with tax and financial professionals who are well-versed in the complexities of tax planning. These professionals should also understand the latest tax laws and regulations to ensure compliance with potential tax-saving opportunities.

In conclusion, proper tax planning for retirees involves strategically using Roth conversions, tax-efficient investments, trusts, and charitable planning. By utilizing these strategies appropriately, retirees can potentially mitigate their tax liability, maintain their standard of living, and make a lasting impact through their estate and charitable contributions. While tax planning can be complex, the right approach – complemented by working with financial and tax professionals – can help pave the way for a financially comfortable retirement.

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An increasing number of full-time workers seek to increase their income through working a side hustle, which is employment in addition to a full-time job. In this article, we’ll delve into the benefits of this trend, essential tips for juggling multiple jobs, and the thin line between considering it as a hobby or business income.

The benefits of a side hustle

Although a side hustle offers the potential for more income, its benefits extend far beyond. Side hustles enable individuals to explore their interests or passions outside their full-time jobs. Side hustles often amplify a sense of freedom and self-reliance, reducing job-related stress and burnout.

A side hustle can be an excellent way to strengthen or add to a skill set, which could lead to promotions or improved job performance in a full-time career. Depending on the side hustle, it may become a viable, exciting career option or help establish a safety net for layoffs or job loss.

Ways to reduce side hustle challenges

Combining full-time work with a side hustle may be challenging, and the key to independence largely depends on mastering the art of balancing multiple jobs. Here are a few tips to make it smoother:

• Manage your time- Prioritize your tasks and delegate time for relaxation. Your health is your wealth, so take care of yourself first so that you can continue to work.

• Align your side hustle with your passion- Aligning your side hustle with something you enjoy makes having two jobs less tedious and gives you something to look forward to.

• Embrace digital tools- Use scheduling and money management tools for efficient time management.
• Remember, your full-time job should not suffer at the cost of your side hustle, so balance is essential.

• Manage your money- You must follow a budget closely to avoid overspending on equipment or supplies you may need. Also, ensure you continue to make payments and due dates and avoid late fees.  

Navigating between a side hustle and a business

Navigating the difference between hobby and business income is another critical facet of working full-time with a side hustle. The IRS has specific guidelines distinguishing between them, which are essential for tax implications. Generally, hobbies are activities done for pleasure, not profit, while a business is to make a profit. A side hustle can start as a hobby but transition into a business once it starts making consistent profit. Financial and tax professionals can help determine if your side hustle should be a business per IRS guidelines.

Keep accurate records of your expenses and income to help determine when it is appropriate for you to form a business. Once you decide that your side hustle is a business, it’s vital to have separate bank accounts for business and personal use. Co-mingling income and expenses in one account can make record keeping difficult and may cause you to miss deductions that could save money at tax time.

The decision to start a side hustle is an exciting journey toward financial confidence, but it requires careful planning and decision-making. Weighing it as a hobby or business income doesn’t change the value you get from it, but it may help in terms of tax and legal considerations.

In conclusion, working full-time with a side hustle is a beneficial strategy that may enhance financial confidence while fostering personal growth. You may balance a full-time job with a side hustle by identifying your passion, managing your time, leveraging available tools, and working with financial and tax professionals. Happy hustling!

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Regardless of your goals, planning at the beginning of the New Year can prepare you to work toward achieving them. One of the most significant benefits of planning is that it gives you the confidence to stay on track toward your goals or make changes to pursue them throughout the year.

To get started, examine your current financial situation by assessing your budget, debt management, savings, retirement savings, and insurance. Next, work toward more complex areas, such as your will and estate plan. As you start planning, your marital status, assets, income, health, financial literacy, employee benefits, number of children, and future retirement income must all be factored into your plan. While having a plan can’t guarantee protection from unexpected life events, it can help you create the groundwork to achieve these eight things in the New Year:

1. Establishing an emergency fund- An emergency fund is money saved in an account to use during financial stress to help improve economic security.

2. Creating a budget- A budget estimates income and expenses for a period, such as a month.

3. Reducing debt- Whether you owe a few thousand or hundreds of thousands of dollars, paying off debt can lead to less financial stress and more financial security.

4. Saving money- Saving money can help prepare you for future goals and expenses and help protect you from financial emergencies.

5. Improving your tax situation- A plan can help illustrate how tax-advantaged investment strategies may reduce your tax bill.

6. Saving for retirement- A financial plan can help illustrate retirement savings projections based on an assumed rate of return to help you determine if you are on track or need to revise your plan.

7. Saving for your child or grandchild’s education- Including education savings in your financial plan can help you estimate how much you need to save to reach your education funding goal.

8. Saving for other financial goals- Whatever your goals are, a plan can help you work towards having the finances to achieve it.

A financial professional can help guide you through the planning process by providing recommendations in several areas of your financial life. While every financial professional has their unique strengths and specialties, they can also help you:

• Determine if you’re on track with your goals.
• Provide a second opinion.
• Evaluate your investment strategies and implement new strategies.
• Assess your risk tolerance and time horizon to align with your goals.
• Rebalance your portfolio.
• Manage roadblocks impacting your finances- job loss, divorce, etc.

Now that you know the eight things planning can help you achieve, take the next step and schedule a New Year’s planning meeting with a financial professional today.

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As one approaches retirement, monitoring your financial situation by understanding your net worth and assessing the assets and resources needed to maintain a comfortable lifestyle throughout retirement is vital. This article explores eight key financial wellness metrics that pre-retirees must monitor as they approach retirement.

1. Income replacement ratio. One of the primary financial wellness metrics is the Income Replacement Ratio (IRR), which calculates the percentage of your pre-retirement income that your retirement income will replace. Many individuals work toward a target ratio between 70-80%. Therefore, if you currently make $100,000 annually, your retirement income should ideally be between $70,000 to $80,000.

2. Net worth. Net worth is one of the most fundamental financial wellness metrics, measuring the total assets, including savings, personal properties, and investments, minus any liabilities or debts. This metric gives an essential broad picture of your financial health and indicates financial stability that may help you to support yourself comfortably in retirement.

3. Liquidity ratio. The liquidity ratio is another critical metric that measures your ability to cover short-term expenses without selling long-term assets or taking on additional debt. This ratio is calculated by dividing your liquid assets, such as cash, savings, and short-term investments, by your current liabilities. A ratio of 1 or greater indicates a healthy level of liquidity. A ratio of 0 or -1, and so on, may indicate concern.

4. Savings rate. Your savings rate, the percentage of income you put aside for savings, is a critical component of retirement planning since it directly impacts the savings you’ll have available to support yourself. Financial professionals often recommend a savings rate of 10% to 15% of gross income. However, the savings rate may change depending on one’s situation, market conditions, risk tolerance, and timeline until retirement.

5. Debt-to-Income Ratio. Recognizing your level of debt is equally important when preparing for retirement. The Debt-to-Income Ratio (DTI) compares your total monthly debt payment to your gross monthly income, providing a deeper look at how you manage your debts. Lenders often use this metric to determine your ability to manage monthly payments and repay borrowed money. A lower DTI ratio indicates a good balance between debt and income.

6. Medical expense forecast. Health care can be a significant expense in retirement. Understanding your likely medical costs can help you plan for this considerable expenditure. Consider your current health status, anticipated medical needs, family medical history, and potential long-term care costs.

7. Retirement savings lifespan. Another crucial metric involves determining how long your retirement savings may last. By evaluating your expected annual withdrawal rate alongside your total savings and expected longevity, you can estimate the lifespan of your retirement savings.

8. Investment diversification. Lastly, investment diversification, the degree to which your assets are spread across different types of investments, is a crucial metric in mitigating risk. A diversified portfolio may provide greater independence, especially during volatile market periods.

Since everyone’s retirement journey is different, these metrics provide a starting point to determine what is appropriate and realistic for your circumstances. It’s always advisable to seek assistance from a financial professional since calculating these metrics on your own may be complex. 

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A donor-advised fund (DAF) is a charitable giving vehicle administered by a public charity created to manage charitable donations on behalf of organizations, families, or individuals. The benefits of DAFs extend beyond their primary purpose of facilitating philanthropic activities. One of the main incentives of DAFs is the tax benefits donors receive from giving. Donors can bolster their philanthropic impact by understanding and leveraging these tax advantages:

1. Immediate Charitable Tax Deductions- One tax benefit of DAFs is the immediate charitable tax deduction. When a contribution is made to a DAF, the donor receives an immediate tax deduction in that tax year. The donor can immediately benefit from the tax deduction before the funds are granted to specific charities.

The tax deductions apply to multiple contributions: cash, privately held stock, real estate, and other appreciated assets. However, the IRS limits the deductible amount based on the donor’s adjusted gross income (AGI) for tax purposes. Typically, the deductions can be up to 60% of AGI for cash contributions and up to 30% of AGI for appreciated securities.

2. Tax-Free Growth- Donations in a donor-advised fund grow tax-free, which may incentivize donors to continue giving and increasing their contributions. The investments made within the DAF continue to appreciate without incurring capital gains taxes. Over time, appreciation may lead to a larger pool of funds available for charitable giving, magnifying the donor’s philanthropic impact.

3. Avoidance of Capital Gains Tax- Contributions of appreciated assets such as stocks, real estate, or other investment assets not only qualify for a tax deduction but also enable the donor to avoid capital gains tax. Donors can avoid the capital gains tax that would typically be owed upon sale by transferring these assets directly into a DAF rather than selling them and donating the proceeds. It is important to note that donors must not liquidate securities before granting but donate the securities directly to the DAF, or capital gains tax will be due.

4. Estate and Inheritance Tax Benefits- DAFs may provide benefits in terms of estate planning. Contributions to a DAF are removed from the donor’s estate, potentially reducing the estate tax liability. If the DAF is a beneficiary, the assets may not be subject to probate. Donors must work with their financial, legal, and tax professionals to fully understand how donating DAFs as part of their estate plan may impact their situation.

5. Simplified Record Keeping- From a tax compliance perspective, DAFs may provide a more simplified means of record-keeping for donations. The DAF sponsor provides donors with all the documentation needed for tax reporting, eliminating the need to track multiple receipts from various charitable organizations.

In conclusion, DAFs present a wide range of tax benefits to donors while helping to facilitate their philanthropic intentions. These five tax benefits make DAFs an attractive vehicle for charitable giving and wealth management. Nevertheless, donors should consult with their financial and tax professionals to fully understand how to leverage the potential tax benefits of DAFs.

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Investors must perform a thorough year-end financial review as the year draws to a close. Whether you’re a seasoned investor or a beginner testing the waters of wealth creation, a comprehensive financial evaluation allows you to modify your strategy, rebalance your portfolio, and manage your returns. Below is an eight step year-end financial checklist to help ensure you pursue financial independence in the New Year.

Step #1- Evaluate your financial goals. The first item on your financial checklist should be taking stock of where you stand with your financial goals. This evaluation may provide a clear insight into how your investments have performed throughout the year and whether or not you’ve achieved your objectives. It’s crucial to assess if these goals align with your current financial situation, standard of living, and retirement plans.

Step #2- Review your investment portfolio. A balanced investment portfolio is part of a comprehensive investment strategy. Review your portfolio to ensure it aligns with your risk tolerance, investment goals, and timeline, which may evolve. Understand your wealth distribution across various asset classes; is there a need for rebalancing according to market trends and financial circumstances?

Step #3- Analyze individual investment performance. Analyze the performance of each investment strategy: stocks, bonds, mutual funds, real estate, and any other type of investment you hold. Pay attention to how each of these investments has performed over the past year, and consider performance in line with the current market trends and financial forecasts.

Step #4- Examine tax implications. Tax planning is integral to a year-end financial checklist. Understanding the tax implications of your investments can help you manage your after-tax returns. Consider strategies such as tax-loss harvesting or taking advantage of tax credits or deductions to save on your tax bill.

Step #5- Check retirement contributions. Ensure you’ve managed your retirement contributions. Making the maximum allowable contributions to your tax-advantaged retirement accounts may help mitigate present tax liability while strengthening future confidence. If you can contribute more, consider doing so before December 31st, the end of the tax year.

Step #6- Update wills and estate plans. If significant life changes occurred in the year, such as marriage, divorce, childbirth, or the death of an heir, you may need to update your estate plans. Updating the beneficiary information on life insurance policies and retirement accounts to reflect information in wills and trust documents is vital

Step #7- Set financial goals for the coming year. After thoroughly reviewing this year, it’s time to set your financial goals for the forthcoming year. The insights gained from your annual review should inform these goals.

Step #8- Seek professional help. A financial professional’s perspective can provide valuable insight into market trends, tax regulation changes, and suitable investment strategies for your financial situation and goals.

As an investor, the end of a fiscal year should be about welcoming the New Year and raising the bar on your financial wellness and preparedness. A year-end financial review is one habit that can be instrumental in maintaining wealth. This process keeps you abreast of the ever-changing financial landscape, provides real-time updates on your investments, helps ensure tax efficiency, and sets the tone for proactive planning for the year ahead.

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Many people are aware of their capacity to impact the world to make it a better place through giving. Philanthropy and charitable giving provide a platform for them to affect positive change beyond wealth accumulation. Charitable endeavors can be personally rewarding while positively impacting the broader society that benefits from their generosity.

The traditional one-time donation is always honorable, but other innovative strategies may have a broader impact. Here are some charitable giving ideas to consider:

Implementing a Donor-Advised Fund (DAF). A Donor-Advised Fund is a philanthropic vehicle that provides an immediate tax benefit to the donor. You contribute financially to the fund and get the privilege to recommend grants to non-profits of your choice over time. DAF allows donors to decide where their funds may make the most impact.

Impact investing. Impact investing refers to investments made into companies, organizations, and funds to generate a social/environmental impact and a financial return. This type of charitable giving goes beyond simply writing a check; it involves actively funding strategies for some of the world’s most pressing problems.

Socially Responsible Investing (SRI). SRI involves investing in companies that practice environmental stewardship, consumer preservation, human rights, and diversity. With SRI, your investment portfolio aligns with your values and ethics while providing a financial return. Individuals can influence corporate behavior and its socially responsible endeavors through this type of investing.

Establish a Foundation. A private foundation allows control over funding while continuously impacting the causes most important to you. Through a foundation, you can direct your funds towards targeted purposes over an extended period, ensuring your financial contributions are used for a sustained effect.

Venture Philanthropy. Venture philanthropy involves investing in charitable organizations or social enterprises demonstrating high potential for social impact. By adopting the strategies employed in venture capitalism, venture philanthropy broadens the prospects of promising organizations, equipping them with the resources they need to drive social change effectively.

Creating Scholarships and Endowments. Scholarships and endowments enable students, researchers, and institutions to make significant strides in their fields. By funding education and research, one can contribute to long-term societal development and improvement in various sectors.

Ultimately, the approach towards charitable giving largely depends on personal passion, vision for impact, and financial capacity. When carefully planned, charitable endeavors can improve society and bring a sense of personal satisfaction by creating a lasting legacy.

To make the most of their philanthropy efforts, individuals must work with financial, tax, and legal professionals who can provide recommendations based on their situation. It’s essential to embrace a philanthropic spirit, continually seek out ideas to increase your impact, and remember that charitable giving isn’t just about philanthropy; it’s about bettering humanity and the environment.

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For many, retirement is the phase of life to kick back, relax, and enjoy the fruits of years of working and saving. However, financial decisions before and during retirement can significantly influence our quality of life and tax liability. Therefore, employing tax-smart retirement withdrawal strategies may help you maximize your retirement nest egg.

Here are seven tax-smart retirement withdrawal strategies to help mitigate your tax burden and help you maintain financial confidence throughout retirement:

1. Tap into your non-retirement accounts first. Withdrawing money from your non-retirement accounts may make sense earlier in retirement. Why? The IRS doesn’t tax the principal balance you contributed to these accounts. You will only have to pay taxes on dividends and capital gains. Plus, delaying withdrawals from tax-deferred retirement accounts gives your money more time to grow.

2. Utilize a Roth IRA Conversion. Converting a traditional IRA to a Roth IRA may help mitigate your tax liability in retirement. However, you’ll have to pay taxes on the converted amount during the conversion year, but the money in your Roth IRA will continue to grow and can later be withdrawn tax-free.

3. Consider Qualified Charitable Distributions (QCDs). If you are 70 1/2 years old or older and have an individual retirement account (IRA), you can directly transfer a certain amount of your annual required minimum distributions (RMD) to charity without incurring taxes on the donation. Using this QCD strategy, you satisfy your RMD without increasing your taxable income.

4. Manage capital gains. Typically, long-term capital gains have lower tax rates than ordinary income. So, consider selling investments in appreciated taxable accounts. Managing these investments for capital gains and taxes may provide income while incurring lower taxes.

5. Time Social Security benefits. The timing of claiming your Social Security retirement benefits could significantly affect your taxable income in retirement. Consider delaying your social security benefits if your other income sources are enough to cover your monthly expenses. This way, you will delay taxes on your Social Security benefits until later when you take them.

6. Explore tax-efficient investments. Lowering your taxable income in retirement may involve placing investments into your portfolio that generally produce lower taxable distributions—for example, investing in tax-managed funds or index funds. A financial professional can help you determine which tax-efficient investments are appropriate for your situation.

7. Contribute to a Health Savings Account (HSA). HSAs offer three tax advantages: contributions are tax-deductible, the money grows tax-free, and withdrawals for eligible medical expenses are also tax-free. Contributing to an HSA during your working years and using the funds to cover healthcare costs in retirement can provide significant tax savings.

There you have it, the low down on tax-smart retirement withdrawal strategies. Because your financial situation is unique, consider visiting with financial and tax professionals to determine which retirement withdrawal strategies are appropriate for you.

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The financial decisions you make between now and the end of the year can significantly impact how much you may pay once tax day arrives. If you take action before December 31st, you may reduce your tax burden and keep more of your hard-earned money. Here are some smart tax-saving strategies to consider:

1. Max out your retirement savings contributions- Tax-advantaged retirement accounts such as 401(K)s and IRAs fund with pre-tax dollars. Any additional contributions you make now can help lower your 2023 taxable income. Therefore, max out your retirement account contributions if you before the end of the year. If you receive an end-of-year bonus from your employer, request to contribute it to your pre-tax retirement savings account.

Use the IRS contribution limit notice for 2023 or contact your financial and tax professionals to determine how much you can save to help lower your taxes based on your situation.

2. Maximize your flexible saving account (FSA) contributions– FSAs are pre-tax healthcare savings accounts offered through employers designed to cover out-of-pocket healthcare costs. You don’t pay taxes on the money you contribute to an FSA. Here are a few more things about FSAs:

• Employers may contribute to your FSA, but they aren’t required to.
• You submit a claim to the FSA (through your employer) with proof of the medical expense and a statement that your plan hasn’t covered it.
• You’ll get reimbursed for your healthcare costs.

3. Participate in charitable giving- Charitable giving enables you to support a cause or organization you believe in. Still, it also offers a great way to save on taxes, even if you take the standard deduction. You can donate appreciated property or stock instead of cash to enhance your tax benefits further. No matter how you donate, keep a receipt, credit card or bank statement, or any other document that proves your contribution.

You can also give using a donor-advised fund or a strategy such as a trust. It would be best to talk to your legal, tax, and financial professional to help you determine an appropriate giving strategy.

4. Contribute to a 529 Plan- If you have children or grandchildren and would like to help them with the cost of college, there’s no better time than now to fund their 529 plans. You may deduct state taxes for contributions to a state-sponsored program, but consult your tax professional to understand the rules to take a tax deduction.

There is no federal tax deduction for contributions to a 529 plan, but the money in these accounts grows tax-free and can be withdrawn to use toward qualified education expenses like tuition, room and board, books, and supplies associated with the education.

Your financial and tax professionals can help you determine which strategies are appropriate for your situation as you start to prepare now for the upcoming tax season.

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Wouldn’t it be nice to pay fewer income taxes in retirement? A tax-advantaged strategy called a Roth IRA conversion may lower your taxable income later in retirement. A Roth IRA conversion involves repositioning a traditional IRA or qualified employer-sponsored retirement plan assets into a Roth IRA. There are a few reasons why investors may pursue a Roth IRA conversion strategy:

• A Roth provides the flexibility to withdraw money when needed.
• There is no Required Minimum Distribution (RMD).
• A Roth IRA conversion as part of estate planning may help lessen the impact of estate taxes on an estate.

Before initiating a Roth IRA conversation strategy, here are things to consider before making your decision:

#1- You will have to pay taxes. Since traditional IRAs and other qualified retirement plans are tax-deferred, upon converting assets into a Roth IRA, the account owner must pay income tax on the amount they convert. Also, the taxes are due upfront when the conversion occurs.

#2- Your Adjusted Gross Income (AGI) may increase. A Roth IRA conversion will increase your income in the year that the conversion happens. Increasing your AGI may also impact your income tax as you move into another income tax bracket.

If you are retired, be mindful that Medicare Part B uses your two previous years’ income to calculate your monthly premium, and the conversion may increase your Part B payment for at least two years.

#3- You may lose eligibility for specific tax write-offs. The child tax credit and student loan interest deduction are based on personal income, and initiating a Roth IRA conversion may mean you lose these deductions if your AGI increases.

#4- You may pay a penalty if you need the money within five years. Roth IRAs typically offer penalty and tax-free withdrawals anytime on contributions. Still, investors must wait five years to withdraw the funds without a 10% penalty when using conversion monies, regardless of age. If you anticipate needing money from your Roth IRA before the five-year rule sunsets, there may be a more appropriate strategy for you.

#5- Your qualified retirement plan may not allow Roth IRA conversions. If you have your retirement savings inside your employer’s retirement savings plan, check the plan’s documents to see if a Roth IRA conversion is allowed. If not allowed and you initiate the conversion, the conversion may not occur, or a penalty will be applied when the conversion happens. Consult your employee handbook, human resources professional, or your employer-sponsored retirement plan’s custodian for answers about your situation.

It’s important for you to meet with your financial and tax professionals so you can determine how a Roth IRA conversion may impact your taxes at tax time. While a Roth IRA conversion may interest you, be sure you understand the pros and cons of initiating this strategy.

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