Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
Contributing to a traditional IRA is a smart financial move that clients make, as the tax deductions that the account offers are really valuable, according to this article in Motley Fool. Aside from tax-deferred growth on the savings, IRA investors who contribute the maximum amount of $6,000 this year can deduct $1,320 on their returns if they are in the 22% tax bracket. Funding a Roth IRA may not offer upfront tax deductions, but withdrawals will be tax-free.
Alaska, Arizona, Delaware and Florida are among the most tax-friendly states across the U.S., according to this ranking by Kiplinger. Also among the states with the lowest state taxes are Louisiana, Montana, Nevada, New Hampshire, North Dakota and Wyoming. The individual tax burden in these states is based on a metric that includes income, property, sales and other state taxes.
Overspending and undersaving is one of the biggest financial mistakes that people make, as it could put their retirement at risk, says an expert in this CNBC article. While many clients are not saving enough for their golden years, socking away all their savings in tax-deferred savings vehicles could result in tax issues in retirement, as distributions from these accounts will be taxable, the expert says. "Better to diversify your savings sources with a mix of taxable and tax-advantaged accounts, so you can better manage income and taxes down the road.”
Although taking RMDs from traditional IRAs will trigger a tax bill, it creates an opportunity for retirees to improve their investment portfolio, writes Morningstar's Christine Benz. "Armed with knowledge of its problem spots, you can then concentrate your RMD-related sales in those areas you wanted to fix anyway," she explains. "As long as you take the right RMD amount from your own IRAs, it doesn't matter which holding the money comes from."
The average expense ratio among the top-performers is 40 basis points higher than the average.
With 2019 coming to a close, small business owners should act now to minimize their tax burden this year, according to this article in MarketWatch. They have the option of setting up a tax-favored retirement plan, which offers upfront tax deductions on the contributions. They should also claim all tax breaks available to them, such as Section 179 depreciation deductions and deduction for qualified pass-through business income. They are also advised to take advantage of the 100% first-year bonus depreciation for qualified asset additions and heavy vehicles.
