7 Year-End Wealth Moves

As we get close to the end of the year, you still have time to improve your financial position with a few well-placed year-end moves.

Maybe because we are working against a deadline, many year-end planning opportunities seem to be tax-related. However, tax moves should be made within the context of your overall long-term financial and investment plan. Hence, make sure to check in with your financial and tax advisers.

Here are seven important areas to focus your efforts to help you make the best of the rest of your financial year.

1. Harvest Your Tax Losses

As of early November, the S&P 500 is up 24% and the Dow Jones is up 18% for the year. Unfortunately, some stocks and mutual funds are still posting a loss for the year. Therefore, it is likely that some items in your portfolio show up in red when you check the “unrealized gains and losses” column in your brokerage statement.

You could still make lemonade out of these lemons by harvesting your losses for tax purposes. It is worth remembering that the IRS individual deduction for capital losses is limited to $3,000 for 2021. In other words, if you don’t offset your losers with your winners, you may end up with a tax loss carryforward that could only be used in future years. This is not an ideal scenario.

You can also offset your losses against your gains. For example, suppose you sell some losers and accumulate $10,000 in losses. You could then also sell some winners. Then, if the gains in your winners add up to $10,000, you would have offset your gains with your losses, and you will not owe capital gain taxes on that combined trade!

Bear in mind that wealth strategy is not all about taxes. Tax loss harvesting could be a great opportunity to help you rebalance your portfolio with a reduced tax impact. Beware though of the wash sale rule: If you buy back your sold positions within 30 days, you will have negated the benefit.

2. Review Your Investment Planning

Tax-loss harvesting can be used effectively for short-term advantage. However, it also provides the opportunity to focus on more fundamental issues. In the first place, why did you buy these securities that you just sold? At one time, they probably played an important role in your investment strategy. And now with the cash from the sale, it’s important to be mindful when reinvesting.

You may be tempted to wait for a while to see how the market evolves. We may have been spoiled into complacency with the bull run that we have experienced since the Great Recession. However, we should not forget that volatility does happen.

It’s almost impossible to predict accurately when the next bear market will start. And after more than 18 months of strong gains, it is time to reassess if you and your portfolio are well-positioned for a potential downturn.

You will want to ensure that your portfolio risk is aligned with your goals, and that your asset allocation is aligned with your risk target. Reach out to your wealth strategist to review.

3. Review your Retirement Planning

There is still time to top out your retirement account! In 2021, you can contribute up to $19,500 from your salary, including employer match, to a standard defined contribution plan such as 401(k), TSP, 403(b) or 457, subject to the terms and conditions of your plan. And if you happen to be 50 years old or older, you can contribute an additional $6,500 for this year.

If you have under contributed to your plan, there may still be time. You have until Dec. 31 to boost your retirement planning by topping off your 2021 contributions. This will also have the benefit of reducing your 2021 taxable income, if you contribute pretax money to a traditional plan.

As an alternative, you could contribute to a Roth account if that plan option is offered by your employer.

Many employers offer a Roth in their employee retirement plans. If yours does not, schedule a chat with your HR department!

Many people think of the Roth account as tax-free. However, you should bear in mind that although Roth accounts are popularly designated as…

 

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