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Tax strategies for clients with inherited 401(k)s: Tax Strategy Scan

Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.

Heirs can use NUA tax break for inherited 401(k)s
Clients can use the net unrealized appreciation to save taxes on employer stock held in inherited 401(k) assets, according to this article from Kiplinger. To use the tax break, they can roll some of the appreciated employer stock into a taxable brokerage account and later sells the shares. Unlike in an IRA where the stock will be taxed as ordinary income, the shares will be subject to long-term capital-gains tax rates, which are lower than income tax rates.

Average 401k pans at Fidelity May 10, 2019

Tax breaks for clients who support their parents
Clients who shoulder more than 50% of the cost of supporting a parent are eligible for tax breaks, as they claim their elder a dependent, according to this article in MarketWatch. Instead of filing as a single taxpayer, unmarried clients who cover over half of their parents' expenses should use the head of household filing status to avail of wider tax brackets and a larger standard deduction.

Down-market guide for younger clients
Clients who are many years away from retirement can prepare for market volatility by targeting a reasonable savings rate, writes Morningstar's Christine Benz. They should also adjust their asset allocation, streamline their accounts, ensure their safety net is adequate and invest in themselves by taking extra trainings or obtaining an advanced degree. If selling shares should be in order, clients should consider the tax consequences. For example, selling in tax-advantaged retirement accounts doesn't trigger a tax liability, while clients will owe capital gains taxes on the sale of individual stocks.

Avoid these 11 money mistakes clients make in their 40s
Many clients in their 40s usually do not have a plan for their finances, a mistake that should be avoided, according to this article from Yahoo Finance. Most of them also do not have an emergency fund and run the risk of using credit cards or dipping into their retirement savings that could trigger taxes and penalties. Being complacent about carrying credit card debt should also be avoided, as this could result in getting trapped in a vicious cycle of not paying off the balance and incurring interest charges.

The average expense ratio among the top-performers is 40 basis points higher than the average.
April 9

5 simple ways to increase clients’ investment returns
Investors should pay attention to their tax liability if they want to boost their portfolio returns, writes a Forbes contributor. This means funding multiple tax-advantaged savings accounts, such as employer-sponsored retirement plans, IRAs and health savings accounts, the contributor writes. "This gives you the opportunity to have a big say in how and when you take withdrawals from your accounts, allowing you to potentially reduce the amount of taxes you pay in the process."

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