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Tax planning skills that matter with index funds: Tax Strategy Scan

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

Tax skills that matter for an index fund
Clients who consider index funds should not only check the fees, but should also compare the after-tax returns of these options for better performance, a Wall Street Journal expert writes. "After adjusting for the management fees paid at each fund, the difference in the average annual returns over 10 years of the fund at the 75th percentile of post-tax returns and the fund at the 25th percentile is 0.26 percentage point," the expert explains. "In the end, the numbers make it clear: Taxes matter in passive investing, just as they do for actively managed funds."

QCD rules to make your clients' IRA qualified charitable distributions count
As the new tax law makes itemizing deductions less valuable, retirees can still get a tax break on their donations to charity by donating directly from their traditional IRA through a qualified charitable distribution, an expert at Kiplinger writes. "The QCD lets you transfer money from your traditional IRA directly to a charity without the money being added to your adjusted gross income," the expert says. "The money can count toward your required minimum distribution if the QCD is made before satisfying your RMD for the year."

Tax-saving benefit only a select group of employers offer
Few employees have access to a health savings account as not many employers offer a high deductible health insurance plan to their workers, according to Motley Fool. An HSA is a great savings vehicle, as contributions are made on a tax-deferred basis and investment growth is not subject to taxes. Moreover, withdrawals are also not taxed if the money is spent for qualified medical expenses.

Donate to charitable funds and nab a tax break in these states — for now
As the state and local tax deduction is capped under the new tax law, several states have passed laws allowing municipalities to create charitable funds and offer property tax credits for homeowners who make contributions, according to this article on CNBC. "There are over 30 states that enable some kind of state tax credit in exchange for contributions to a state-sponsored fund or a private charitable fund," an expert says. "I don't see a way the IRS can credibly thread the needle, attack New Jersey and leave in place Alabama."

A majority of affluent Americans are likely to adjust their financial plans under the new law, according to the AICPA. Here's how advisors can help.
April 19

Other than tax advantages, what are the benefits of a Roth IRA?
Aside from tax-free withdrawals, a Roth IRA allows clients to withdraw the funds any time, giving them flexibility in retirement planning, according to this article on Fox Business. Unlike traditional retirement accounts, a Roth IRA is also not subject to RMD rules, so they can keep the money even they are past the age of 70 1/2. There is also no age limit for clients who want to contribute to a Roth IRA, allowing older workers to invest their earnings on tax-advantaged basis.

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