One way to help clients cut taxes in retirement: Tax Strategy Scan
Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
Try this strategy to help clients save on taxes in retirement
Retirees can expect a sudden increase in their tax bill, especially when they start taking mandatory distributions from their tax-deferred retirement accounts such as traditional IRA and 401(k), writes an expert on Citizen-Times. "For retirees between the ages 59½ and 70½, consider the Roth IRA conversion strategy," writes the expert. "Even though you will pay federal income tax on the amount you convert every year, the idea here is that you are taking advantage of lower rates before any possible provisions expire in 2026 and before those RMDs start at age 70½."
Filed a tax extension? 3 mistakes to avoid
Taxpayers who filed a tax extension are advised to avoid procrastinating to ensure they will meet the October 15 deadline, according to this article on Motley Fool. They should also settle their unpaid taxes as soon as they can, as waiting until the deadline could mean accruing too much interest on the unpaid bill. Taxpayers should also ensure that their returns are void of any errors before filing the forms.
Tax cuts bust ‘secular stagnation’
Contrary to what many experts think, the U.S. economy is experiencing a revival and growth thanks to the new tax reform law, writes Mike Solon, a partner at US Policy Metrics, in an opinion piece in The Wall Street Journal. "This explosive growth, and the accompanying spikes in hiring and wages, should finally discredit three popular claims made by opponents of the president’s policies: that tax cuts would blow a hole in the deficit, that corporate tax cuts would serve only rich investors, and that secular stagnation was a valid excuse for the slow growth of the Obama era."
Do's and don'ts of tax-efficient investing
This article on U.S. News & World Report offers rules that will enable clients to build a tax-efficient investment portfolio. Clients can minimize the tax bite by investing in a tax-advantaged account. “The primary advantages of a taxable brokerage account are flexibility and control. Unlike tax-deferred or tax-free accounts, a taxable brokerage account does not come with limits regarding amounts to be invested each year, penalties for early withdrawals or required later withdrawals,” says a financial advisor.
Tax-free 1031 real estate exchange
The 1031 exchange offers real estate investors the opportunity to swap actively managed investments into a passive retirement asset, writes a certified financial planner in the Palm Beach Post. "There are several large real estate companies currently offering turnkey 1031 exchange diversified passive real estate investments that may be attractive to investors looking for tax efficiency and predictable passive retirement income," writes the expert. "Exchanged property will receive a full step up in tax basis at the time of the death of the owner."
Roth vs. traditional IRAs, 401(k)s: Which is better for you?
Contributing to a Roth account is a better option than investing in a traditional IRA or 401(k) if clients expect to be in the same or higher tax bracket after they retire, according to this article on Investor's Business Daily. "For that reason, everything else being equal, for young workers who are in the early part of their careers, the advantage tips to Roths," says an expert with Vanguard. "That's because their salary is likely relatively lower than it potentially will be later in their career or in retirement."