Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
How’s that tax cut working out?
Clients have yet to see a positive impact of the Tax Cuts and Jobs Act not only on their take-home pay but also on the economy, according to this opinion piece from The New York Times. "[T]he effects of the Trump tax cut are already looking like the effects of the Brownback tax cut in Kansas, the Bush tax cut and every other much-hyped tax cut of the past three decades: big talk, big promises, but no results aside from a swollen budget deficit."
What type of trust solution is best for your client?
Clients engaged in estate planning are advised to include trust in their strategy to integrate tax planning for efficient transfer of wealth to their loved ones, a CFP writes with Kiplinger. "By passing ownership of tax-advantaged assets, like life insurance policies, annuities or IRAs, to a trust with designated beneficiaries, the assets can continue to grow tax-deferred or tax-free (depending on the account), for many additional years..." an expert writes. "Vehicles like generation-skipping trusts, credit shelter trusts and intentionally defective grantor trusts can maximize the value to beneficiaries while limiting their tax liability, when structured and implemented strategically."
How to plan for higher health-care costs in retirement
Analysis by Fidelity Investments found that a healthy 65-year-old couple can expect their health care expenses throughout retirement to hit $280,000, according to CNBC. Clients who intend to retire at 65 or later should ensure that they sign up for Medicare on time. Those who have high-deductible health plans should consider contributing to a health savings accounts, which is funded with pretax dollars and offers tax-free investment growth and withdrawals for qualified medical expenses.
The tricky business of Roth conversion
The earnings portion of the distributions from a Roth IRA are tax-free if investors are older than 59 1/2 and their accounts is already more than five years old, according to this MarketWatch Q&A. Investors who are 59 1/2 and younger will also face taxes but not a 10% penalty if they do a Roth IRA conversion and the converted amounts have been in the account for at least five years. This means that younger investors should ensure that they meet the five-year rule to avoid incurring the penalty for the converted amount.
4 tax moves your clients still need to make this year
The tax season is finally over, and taxpayers may start making financial moves to reduce their tax liability for the current year, according to this article on Nasdaq. To accomplish this, clients should max out tax-deductible contributions to their retirement accounts, raise their mortgage payment for bigger tax break and keep track of their finances. Taxpayers should also consider harvesting losses to write off capital gains and reduce their tax bill.