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Ways tax law changes affect retirees, pre-retirees: Tax Strategy Scan

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

How the tax changes affect retirees and pre-retirees
Taxpayers, particularly seniors, are less likely to itemize tax deductions on their 2018 returns as it will be more convenient to claim the standard deduction, which is also doubled under the new law, according to an expert interviewed in this Morningstar article. "With the larger standard deduction you're still going to have some of those expenses you incurred during the year that are considered deductible but aren't big enough to get you over the threshold," the expert writes. "Instead of bumping up right up to it every year and never really getting the benefit of those expenses, you try to bunch them into one calendar year."

The new tax law and your clients’ life insurance options
While rich clients buy life insurance to provide tax-free inheritance to their loved ones after they die, the increase in estate tax exemption under the new law makes such an option unnecessary, according to this article from the Huffington Post. The new law raises the exemption to $11 million for singles and $22 million for couples. Despite the change, clients should keep their life insurance policy for the sake of family members who have no plans of sharing the inheritance.

Are your clients ready for a self-directed IRA?
Clients who want to use their retirement savings to invest in real estate and commodities may opt to set up a self-directed IRA, according to CBS Moneywatch. This option enables retirement investors to conduct tax-free business inside the retirement vehicle. Clients who opt for a self-directed IRA are advised to follow the IRS rules strictly or else the account will be subject to taxes.

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Here’s a way for clients to get a pension-like benefit in retirement
A personal defined-benefit plan remains an option for retirement savers who want to have a guaranteed income in the golden years, according to this MarketWatch article. The funds invested in a pension plan are tax deductible, while the annual maximum amount to be invested in the plan is larger than in a 401(k). When setting up the plan, clients will have to make contributions every year, expect their requirement contribution to increase during a bear market, and face high fees.

6 tax breaks clients can still get as a higher earner
Taxpayers in a higher tax bracket qualify for tax breaks that can further boost their savings, according to this article on Motley Fool. They may want to raise their retirement plan contributions, and hold on to their investments for more than a year before selling to get the lower capital gains tax rates. Higher-income taxpayers may also make the most of the child tax credit and deductions for mortgage interest payment, charitable contributions and state and local taxes.

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