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A retiree's guide to selling investments: Tax Strategy Scan

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

A retiree's guide to selling investments
When selling investments, retirees should tap into their Roth accounts last to allow their assets more time to grow tax-free, according to this Motley Fool article. However, if selling the investments they need for their retirement income would cause an “excessive tax bill,” they may want to consider taking a portion of the funds from their Roth account in order to keep tax expenses at an affordable level. Another caveat for clients to consider is that they’ll have to start taking required minimum distributions from tax deferred accounts at age 70 1/2. So at that point, they should turn to other accounts only if they need more money than the RMD calls for.

Retirees are advised to tap into their Roth accounts last to minimize hefty tax bills associated with 401(k) distributions.
A man reads a newspaper at the Hong Kong Jockey Club's Happy Valley racecourse in Hong Kong, China, on Wednesday, June 14, 2017. One of the city's most-venerable institutions, the Hong Kong Jockey Club, which has been called an "ATM for the government" for its huge contributions to the city's tax coffers and charity efforts, is facing trouble. Disinterest among many young people and an upcoming bridge link to the glittering casinos of Macau threaten the future of the money-spinning gambling monopoly. Photographer: Justin Chin/Bloomberg

Why investors should not flee when a fund manager resigns
The departure of a fund manager should not prompt investors to sell their shares; as such a move could trigger unnecessary tax liability, according to this article from the Wall Street Journal. Selling investments in a taxable account is a tax event, so investors should ensure that the outcome of the sale is justifiable. For example, moving to a comparable but cheaper fund is reasonable if management changes resulted in higher expenses.

Leave your loved ones a generous legacy — not a tax bill
With good tax and retirement planning, clients can secure their golden years and leave a legacy to their loved ones with minimum tax liability, according to Kiplinger. For example, a surviving wife who has sufficient retirement savings may disclaim the IRA she inherited from her deceased husband and pass it directly to her children through IRA gift tax section 2518. This strategy will enable her and her children to save on taxes, as the children will be required to take required minimum distributions from the inherited IRA based on their own life expectancy table.

Inheritance can fund 401(k) with household budget adjustments
Clients who received a big amount of inheritance have the option of maxing out their 401(k) contributions and get their employer's match, according to this Orlando Sentinel article. Maxing out would reduce their take-home pay, so they can use their bequest to cover living and other household expenses. They may reduce their contributions to the level they can afford once they use up the inheritance.

More than 80% of the richest clients want big asset growth later in life, according to a new UBS survey.
August 2

Employees are getting serious about saving for retirement
Recent studies have found that an increasing number of clients are making the most out of their employer-sponsored retirement plans, according to this article from MarketWatch. Findings from a study by Fidelity Investments show account balances in 401(k) plans and IRAs rose to record high for the third straight quarter. Another study by Bank of America found a 6% increase in enrollments, 17% growth in plan assets, and 20% increase in contributions, with more workers contributing to a Roth 401(k) plans, which unlike a traditional 401(k) are funded with after-tax dollars and provides tax-free distributions in retirement.

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