Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
Clients should calculate their return on investments when calculating returns and debt paydowns to help with their decisions involving capital allocations, according to Morningstar. One tip is to write down all their debts; including mortgages, home equity loans and credit cards, as well as account for the interest rates. Some of the loans, such as mortgage interest payments, are tax deductible, but the tax benefits may not be optimal.
Before leaving the workplace for good, seniors are advised to estimate their income in retirement, according to this Motley Fool article. They should also determine the amount of taxes they will owe on their retirement income, such as withdrawals from 401(k)s, IRAs and Social Security. Another consideration to make is their health care expenses, as some of these costs are not covered by Medicare and other supplemental insurance.
Contributing to a traditional or a Roth IRA is a smart move for clients who are maxing out their employer-sponsored 401(k) plan, according to CBS Moneywatch. A Roth IRA is recommended to young workers who are in a lower tax bracket, as the account is funded with after-tax money. This means that the tax bill will lower than when they pay taxes on the distributions from a traditional IRA in retirement, when they are already in a higher tax bracket.
Clients are advised to give their money away to loved ones only if they have saved enough for retirement, according to this article on MarketWatch. They can make unlimited charitable donations but they face a cap on annual tax deduction. They can gift money to their loved ones up to $14,000, which is the annual gift-tax exclusion.
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When a tax-deferred account is part of an estate, failure to follow the tax rules correctly can result in a financial disaster.
February 17 -
Clients who make these prohibited transactions can face devastating penalties.
February 1 -
How IRA conversions can come at a steep price for clients. Plus, ways to dodge a surprise bill from the IRS.
February 27
Retirement investors are advised to rebalance their portfolio once a year to maximize their returns, according to this article on Money. Not rebalancing the portfolio could result in more stock allocation than bonds, which increases the portfolio's risk exposure. Investors could incur bigger losses when the markets slow down. To minimize the tax bill when rebalancing, clients should concentrate the transactions in tax-advantaged accounts, such as 401(k) and IRA.
