Financial Gifting Strategies For Your Family
Many people want to explore how they can make gifts to family members without affecting their own financial security. We offer these possible gifting options.
By SJS Senior Advisor & Managing Director Jennifer Smiljanich, CFP®.
You'd like to experience the joy of gifting to your children and grandchildren during your lifetime. You'd like to be able to put a smile on the face of your child who is struggling to make ends meet. You are concerned about potential changes to estate tax laws and whether that may impact how much of your estate goes to Uncle Sam. Do any of these situations strike a chord with you?
In the last year, we have heard from many clients who would like to explore how they can make gifts to family members without affecting their own financial security. Some worry about potential tax changes, and how those may affect what legacy they can leave to future generations.
We have helped families create and implement gifting strategies for the past 25+ years. We are glad to help offer guidance to you and explain possible gifting options. Please note that all of the below gifting options apply to both children and grandchildren.
Gifting Money Directly
Each year, an individual may give up to $15,000 (for 2021) per child - or up to $30,000 for a child and their spouse - without using up any of the individual’s lifetime gifting limits.[1] A couple may gift a combined $30,000 per year per child, or a combined $60,000 to a child and their spouse.[2]
If an individual were to die in 2021, they could leave up to $11.7 million ($23.4 million for couples) to beneficiaries without paying federal estate and gift taxes.[1] There is discussion that these high estate and gift tax exemptions might be on the chopping block; President Biden has proposed decreasing estate and gift taxes levels to those last seen in 2009: $3.5 million per person for the estate tax, $1 million for the gift tax, and a top tax rate of 45%.[3]
Gifting For Specific Purposes
Tuition And Medical Expenses
Many parents want to gift money for specific purposes, instead of gifting cash with no limitations on potential uses. For example, there are some exceptions to the annual $15,000 gifting limits, including:[1]
Tuition for someone else
Medical expenses for someone else
Education Account: 529 Plan
To help pay for your child’s future education costs, you can create a 529 plan with your child (or grandchild!) as the beneficiary, and then donate to the 529 plan subject to gift tax rules. 529 plans can be invested in broad-market mutual funds, and can grow tax-free and penalty-free as long as withdrawals are used for the beneficiary’s qualifying education expenses.[4] A donor to a 529 plan has the ability to "frontload" gifts of up to five times the annual gift tax exclusion. However, if the donor were to pass away before the full five years, a portion of their gift could be added back into their estate and may result in gift taxes.[5]
Retirement Account: Roth IRA
You can also help your child save for retirement: as long as your child earns enough taxable income (but below the Roth IRA income limit) and has not contributed to a Traditional IRA or Roth IRA for the year, you can contribute $6,000 (2021 limit) directly to your child’s Roth IRA each year.[6]
Gifting Appreciated Securities
Generally, gifts can be made in cash or using appreciated securities (stocks, bonds, mutual funds, ETFs). Gifting highly appreciated securities to someone in a lower tax bracket may result in lower taxes for your family as a whole.[7]
Family Loan
If you want to help your child but don’t want to gift money, you can instead loan money. This may help your child get a loan for a specific purpose at a lower interest rate than third-party loan vendors may charge. To ensure the loan’s legitimacy, the IRS mandates that any family loan must have a signed written agreement, a fixed repayment schedule, and a minimum interest rate (you can use Applicable Federal Rates as the minimum).[8] If the loan exceeds $10,000 or the loan recipient uses the money to produce income (such as investing in stocks or bonds), you will need to report the interest income on your taxes.[8] We recommend that you consult with your tax advisor.
Summary
Parents often tell us: “We want to give our children enough so that they feel they could do anything, but not so much that they could do nothing.“ The better you manage your finances, educate your children on financial topics, and plan your specific gifting strategies, you may not have to gift as much as you think to help give your children all sorts of opportunities.
As always, we are here to help you go over gifting strategies, and help you choose and implement the best strategies for your family situation. If you have any questions or just want to talk with us about gifting strategies, please feel free to reach out to us.
Important Disclosure Information And Sources
[1] “Frequently Asked Questions on Gift Taxes“. IRS, irs.gov.
[2] “Will You Owe a Gift Tax This Year?“ ElderLawNet, 06-Mar-2021, elderlawanswers.com.
[3] “IRS Announces Higher Estate And Gift Tax Limits For 2021“. Ashlea Ebeling, 26-Oct-2020, forbes.com.
[4] “Topic No. 313 Qualified Tuition Programs (QTPs)“. IRS, irs.gov.
[5] “Do You Have to Pay Gift Taxes on 529 Plan Contributions?“ Mark Kantrowitz, 28-Jan-2020, savingforcollege.com.
[6] “Roth IRAs“. IRS, irs.gov.
[7]“How to Give Stock as a Gift (And Why Tax Pros Like The Idea)“. Chris Davis, 15-Dec-2020, nerdwallet.com.
[8] “Family Loans: Should You Lend It or Give It Away?“ Schwab, 24-May-2019, schwab.com.
There is no guarantee investment strategies will be successful. Past performance is no guarantee of future results. Diversification neither assures a profit nor guarantees against a loss in a declining market.
Advisory services are provided by SJS Investment Services, a registered investment advisor with the SEC. Registration does not imply a certain level of skill or training. SJS Investment Services does not provide legal or tax advice. Please consult your legal or tax professionals for specific advice. This material has been prepared for informational purposes only.
Statements contained in this post that are not statements of historical fact are intended to be and are forward looking statements. Forward looking statements include expressed expectations of future events and the assumptions on which the expressed expectations are based. All forward looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties which could cause actual events or results to differ materially from those projected.
Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.
Suggested Reading
Should You Convert Your IRA To A Roth IRA?
Depending on individual circumstances, some people consider converting their Traditional IRA to a Roth IRA in an effort to increase longer-term after-tax returns.
By SJS Investment Services Senior Advisor Andrew Schaetzke, CFP®.
Taxes may be one of your most important considerations in the design and implementation of your investment strategy. We want to help you increase after-tax returns, subject to your particular investment plan.
When you have some combination of taxable, tax-deferred, and tax-exempt investment accounts, assuming the same investments, we expect your after-tax returns to be higher for tax-advantaged (tax-deferred and tax-exempt) accounts compared to taxable accounts.
One specific tax-advantaged account - the Individual Retirement Account (IRA) - has an important feature that can potentially help you increase your after-tax expected returns over time.
Individual Retirement Accounts (IRAs): Traditional IRA Vs. Roth IRA
An IRA is meant to help people save for retirement in a tax-efficient way. There are two types of IRAs:[1]
Traditional IRA: As long as your taxable income (MAGI) is not above the Traditional IRA deduction limit, the money you put into the account is not taxed and may be deducted from your income up to $6,000 in 2021 ($7,000 if over age 50). When you withdraw money from the account at a later date, it is taxed at ordinary income tax rates.
Roth IRA: As long as your taxable income (MAGI) is lower than the Roth IRA income limit, the money you put into the account is taxed now with no deduction. The money taken out of the account at a later date after age 59 1/2 is not taxed at all.
For a more thorough explanation of Traditional IRAs and Roth IRAs, please see this IRS website.
Converting A Traditional IRA To A Roth IRA
Depending on your individual circumstances, you may consider converting your Traditional IRA to a Roth IRA in an effort to increase your longer-term after-tax expected returns. As part of the process, you have to pay federal & state income taxes now on the amount of money that you convert. There are many reasons you may consider converting to a Roth IRA, including:
More tax-free withdrawals in retirement
Watch your money potentially grow tax-free longer
Decreasing future tax burden for beneficiaries of your Traditional IRA
You may be a good candidate for a conversion if:
You are paying lower federal & state income tax rates now compared to expected taxes in the future.
You have lower taxable income this year compared to expected future years.
You want to lower the required minimum distributions (RMDs) from the Traditional IRA.
You are interested in lowering your Medicare IRMAA surcharges by decreasing future taxable income (MAGI).
You want to feel more in control of your future tax burden.
For more information on IRA conversions, please see this IRS website.
Risks of Converting A Traditional IRA To A Roth IRA
Rolling over a significant balance to a Roth IRA could put you into a higher income tax bracket and leave you with a bigger tax bill this year. If tax rates decrease in the future, you may end up paying more taxes by converting now relative to in the future. The regulatory rules and income limits surrounding conversions can be complex, and it is easy to make mistakes during the conversion process, which may complicate filing your taxes, potentially lead to the 10% penalty, and could lead to an IRS audit. Assets converted to a Roth IRA must be held in the Roth IRA for at least five years before withdrawing in order to avoid a 10% penalty. Depending on your conversion method, you may not be invested during the conversion period. Additionally, the conversion may cause you unnecessary stress.
Summary
Converting a Traditional IRA to a Roth IRA is highly dependent on your unique circumstances. SJS can help you review your current situations, and analyze the benefits and tradeoffs of conversions. As always, please work with your tax advisor to appropriately complete any IRA conversion and associated paperwork.
IRA conversions are just one of the many ways that SJS helps people potentially increase their after-tax expected returns over time. If you want to learn more about other ways and how SJS may be able to help you, please feel free to reach out to us.
Important Disclosure Information And Sources:
[1] “Traditional and Roth IRAs“. IRS, irs.gov.
[2] “IRA FAQs - Rollovers and Roth Conversions“. IRS, irs.gov.
There is no guarantee investment strategies will be successful. Past performance is no guarantee of future results. Diversification neither assures a profit nor guarantees against a loss in a declining market.
Advisory services are provided by SJS Investment Services, a registered investment advisor with the SEC. Registration does not imply a certain level of skill or training. SJS Investment Services does not provide legal or tax advice. Please consult your legal or tax professionals for specific advice. This material has been prepared for informational purposes only.
Statements contained in this post that are not statements of historical fact are intended to be and are forward looking statements. Forward looking statements include expressed expectations of future events and the assumptions on which the expressed expectations are based. All forward looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties which could cause actual events or results to differ materially from those projected.
Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.
Suggested Reading
Should You Change Your Financial Plan Because Of A One-Party Government?
It appears that Democrats will control the Presidency and Congress. Naturally, the question many clients have been asking is “What does this mean for my portfolio?”
By SJS Chief Investment Officer Tom Kelly, CFA.
We’re just a few days in to 2021, and the excitement has already begun. With the Senatorial runoff election in Georgia, the next leaders of Washington are set to be sworn in. It appears that Democrats will control the White House, Senate, and House of Representatives.[1] Naturally, the question many clients have been asking is “What does this mean for my portfolio?”
First, we want to emphasize that this has happened before. As the chart below shows, Democrats have controlled the Presidency and Congress (House & Senate) for a combined 16 years since 1960.[2]
While we believe that speculating about short-term market movements is futile due to the noise and thousands of variables that go into market movements, it never hurts to take a look at the data. If the past is any indication of what is to come, your portfolio will do just fine. Since 1926, the average annualized return of the S&P 500 when both the President and Congress were held by Democrats is over 15%.[3]
Source: S&P data © 2020 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. In US dollars. See Important Disclosure Information.
Nevertheless, we believe that recent election results will lead to significant consequences for investors. For example, we would not be surprised if federal income tax rates for high net-worth individuals, federal capital gains & dividend tax rates, and the U.S. corporate tax rate increase. From a financial planning perspective, we believe these potential changes would make tax management even more important.
Through MarketPlus Investing, we do all of these tax smart things for our clients:
Use Tax-Advantaged Investment Accounts
Via tax-deferred (401(k), 403(b), 457, IRA, Keogh, etc.) and / or tax-exempt (Roth 401(k), Roth 403(b), Roth 457, Roth IRA, 529, HSA, etc.) investment accounts, eligible investors can use tax-advantaged investment accounts to decrease intermittent tax payments, thus allowing more time for investments to compound.
Choose Tax-Aware Investments
In order to lower taxable capital gains and dividend distributions, we typically advise taxable clients to invest in lower turnover, broadly-diversified, tax-aware mutual funds and ETFs.
Long-Term Investing Focus
Within the U.S., higher net-worth investors tend to have lower capital gains and distribution marginal tax rates if they hold an investment for more than one year. Additionally, investing for the long-term allows investments to compound with potentially lower intermittent tax payments.
Asset Location
In order to maximize after-tax expected returns, we believe that tax-inefficient investments should be invested in tax-advantaged accounts when possible. We work with clients to design personalized asset location strategies based on their available options and limitations.
Tax Loss Harvesting
As part of a robust rebalancing process, opportunistically realizing losses in your portfolio can help to offset current and future realized gains, thus potentially lowering short-term tax payments and allowing more time for your investments to compound.
Charitable Contributions
Many investors have charitable intentions. By creating a well-designed financial plan for charitable giving, and using available tax-advantaged techniques (such as donor-advised funds), investors can increase the wealth that goes to the causes that they care about.
Source: Dimensional Fund Advisors. In US dollars. Growth of wealth shows the growth of a hypothetical investment of $1 in the securities in the Fama / French US Total Market Research Index. See Important Disclosure Information.
Ever-changing economic, political, and investing environments inspire SJS professionals to continually improve upon our investment processes, controlling what we can in efforts to maximize our clients' after-tax share of returns. We have been doing this for over 25 years, and it’s what we love to do. Regardless of election outcomes and political landscape in Washington, we believe that your SJS MarketPlus Investing strategy is designed to handle market movements of all kinds.
If you have any questions on how potential upcoming legislation may impact you, please reach out to us. We are always here to listen and assist.
Important Disclosure Information And Sources:
[1] “Updating: The Latest From Washington — And Georgia.“ FiveThirtyEight, 06-Jan-2021, fivethirtyeight.com.
[2] “Divided government in the United States.“ Wikipedia, en.wikipedia.org.
[3] The S&P 500 Index is a free float-adjusted market-capitalization-weighted index of 500 of the largest publicly traded companies in the United States.
There is no guarantee investment strategies will be successful. Past performance is no guarantee of future results. Diversification neither assures a profit nor guarantees against a loss in a declining market.
Advisory services are provided by SJS Investment Services, a registered investment advisor with the SEC. Registration does not imply a certain level of skill or training. SJS Investment Services does not provide legal or tax advice. Please consult your legal or tax professionals for specific advice. This material has been prepared for informational purposes only.
MarketPlus Investing® models consist of institutional quality registered investment companies. Investment values will fluctuate, and shares, when redeemed, may be worth more or less than original cost.
Indices are not available for direct investment. Their performance does not reflect the expenses associated with management of an actual portfolio. In US dollars. The index performance figures assume the reinvestment of all income, including dividends and capital gains. The performance of the indices was obtained from published sources believed to be reliable but which are not warranted as to accuracy or completeness.
The growth of wealth chart begins with the start of the first full presidential term (March 4, 1929) for which Fama / French Total US Market Research Index data is available and ends on June 30, 2020. Data presented in the growth of wealth chart is hypothetical and assumes reinvestment of income and no transaction costs or taxes. The chart is for illustrative purposes only and is not indicative of any investment.
The Fama / French Total US Market Research Index is a value-weighed US market index is constructed every month, using all issues listed on the NYSE, AMEX, or Nasdaq with available outstanding shares and valid prices for that month and the month before. Exclusions: American depositary receipts. Sources: CRSP for value-weighted US market return. Rebalancing: Monthly. Dividends: Reinvested in the paying company until the portfolio is rebalanced.
Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.
Suggested Reading
There's Always Something Smart To Do: Harvesting Losses
Some taxable clients have recently asked us: what can we do with our harvested losses? Investors may have the following options.
By SJS Senior Advisor Andrew Schaetzke, CFP®.
2020 has been one of the most volatile years in the stock market’s history, largely driven by uncertainty surrounding the COVID-19 pandemic.[1] From February 12, 2020 through March 23, 2020, the global stock market (as measured by the FTSE Global All Cap Index) fell roughly 34%. Since the bottom on March 23, 2020, it has rallied upwards almost 68% through December 10, 2020. This has provided a year-to-date 2020 global stock market return of 14%.[2]
Source: Google Finance. See Important Disclosure Information for additional details.
In a perfect scenario, your investments would only go up and you would never experience a down market. Unfortunately, this is not how markets behave and not a scenario that many people have experienced, not even Warren Buffett. However, just like past market crashes, there is a lesson to be learned from this year.
We believe that most investors should buy-and-hold broadly diversified investments for the long-term, and, more importantly, stay invested through periods of extreme market volatility, which is not easy. Nonetheless, we believe that investors can use market volatility to their short-term and long-term advantage. For example, in order to decrease clients' potential taxes over the short-term, SJS used tax loss harvesting particularly during February and March by selling certain investments with significant losses in taxable accounts and buying similar investments. As a result, many taxable investors now have significant net realized losses for 2020. This means that they may owe little to no taxes this year, and be able to carry any additional losses forward for years to come.
Some taxable clients have recently asked us: what can we do with our harvested losses? Investors may have the following options:
Sell investments with unrealized gains that you no longer want
Particularly if you want to sell out of specific investments in your taxable accounts in order to increase diversification and / or buy other investments, you can use your harvested losses in order to decrease your short-term expected taxes.
It is important to emphasize that you can use long-term harvested losses to first offset long-term capital gains, and then short-term capital gains. Similarly, you can use short-term harvested losses to first offset short-term capital gains, and then long-term capital gains.[3]
Rebalance your existing investments
If some of your investments in your portfolio have significantly outperformed, you can use your harvested losses to sell a portion of the outperforming investments.
We generally believe that over the long-term, deferring the sales of your highest-capital gains tax lots will potentially increase your long-term expected returns. Therefore, we generally advise clients to sell their lowest capital gains tax lots when rebalancing.
Decrease your federal taxable income by up to $3,000 for the year
If you have net losses from your taxable portfolio, you may be able to decrease your federal taxable income by $3,000 (or $1,500 if married filing separately). You can use this $3,000 annual net capital loss deduction regardless of whether you itemize or use the standard deduction when filing taxes. Additionally, some states allow you to decrease state income taxes using net harvested losses.[3]
Carry forward net realized losses for future years
While filing taxes, you can carry forward your unused net realized losses in order to do any of the above in future years. You do not have to use all of your net realized losses, and net realized losses typically do not expire.[3]
We think the above details productive uses for your harvested losses. However, there are some actions we generally advise clients to avoid. For example, we typically advise clients:
Do not realize capital gains just in order to use your net realized losses
Since you can carryforward net realized losses to future years, you do not need to use all of your harvested losses.
Do not take more investment risk in order to try to make up for realized losses
Sometimes, investors think that they should take additional investment risk in order to make up for losses earlier in the year. We often strategically realize losses for our taxable clients, and thus realized losses are not necessarily indicative of poor investment performance for the year. Therefore, we believe that investors should stick with their long-term investment plan instead of trying to make up for perceived poor investment performance.
Do not buy a substantially identical investment within 30 days of realizing a loss (Wash Sale Rule)
Because of the Wash Sale Rule, investors who realize a loss by selling an investment and then buy a substantially identical investment within 30 days cannot deduct the realized loss for tax purposes.[4]
Overall, we believe that using your harvested losses strategically as part of your tax loss harvesting process can increase your portfolio’s expected return over the short-term and long-term.
We spend our days helping clients figure out and improve their investments. If you have any questions on what to do with your harvested losses, or want to create a better tax loss harvesting process going forward, we would be happy to help you as well.
Important Disclosure Information And Sources:
[1] “The Craziest Month in Stock Market History.” Nick Maggiulli, 01-Apr-2020, ofdollarsanddata.com.
[2] The FTSE Global All Cap Index is a market-capitalisation weighted index representing the performance of the large, mid and small cap stocks globally. The index aggregate of around 8,000 stocks cover Developed and Emerging Markets.
[3] “Topic No. 409 Capital Gains and Losses.“ IRS, irs.gov.
[4] “Wash Sales.“ U.S Securities and Exchange Commission, investor.gov.
Advisory services are provided by SJS Investment Services, a registered investment advisor with the SEC. Registration does not imply a certain level of skill or training. SJS Investment Services does not provide tax advice. Please consult your tax professional for specific advice. This material has been prepared for informational purposes only.
There is no guarantee investment strategies will be successful. Past performance is no guarantee of future results. Diversification neither assures a profit nor guarantees against a loss in a declining market.
MarketPlus Investing® models consist of institutional quality registered investment companies. Investment values will fluctuate, and shares, when redeemed, may be worth more or less than original cost.
Indices are not available for direct investment. Their performance does not reflect the expenses associated with management of an actual portfolio. In US dollars. The index performance figures assume the reinvestment of all income, including dividends and capital gains. The performance of the indices was obtained from published sources believed to be reliable but which are not warranted as to accuracy or completeness.
Statements contained in this report that are not statements of historical fact are intended to be and are forward looking statements. Forward looking statements include expressed expectations of future events and the assumptions on which the expressed expectations are based. All forward looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties which could cause actual events or results to differ materially from those projected.
Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.
Suggested Reading
Ben Franklin Got It Half Right
Maybe Ben Franklin was wrong about taxes. When it comes to investing, you can potentially avoid taxes, or at the very least postpone them.
Managing Taxes through MarketPlus® Investing
By SJS Founder & CEO Scott Savage
You’ve heard Ben Franklin’s famous words, “In this world nothing can be said to be certain except death and taxes.” He uttered them way back in 1789, and for centuries, most of us have accepted his belief as inevitable and true. But maybe, just maybe, Ben was wrong about taxes. When it comes to investing, you can potentially avoid taxes, or at the very least postpone them. Death? Well, Ben was right about that one.
Tax planning and tax mitigation are topics that have always been important to the team at SJS. But the 2013 Affordable Care Act’s surtax of 3.8% on the investment income of higher earners makes being smart about taxes even more critical. The good news for you is that tax planning is inherent in MarketPlus Investing. It’s what we do, and in case you were wondering how we do it, our focus is on four key strategies:
Strategy 1: Design a portfolio with low turnover to “realize” minimal gains
This time of year, many mutual fund shareholders discover the level of income and capital gains distributions they can expect. And it’s the time of year when many unsuspecting investors learn the unfortunate truth that activity within their funds has left them with the bitter taste of unexpected taxes. For many non-MarketPlus investors, 2014 may not be a good year.
According to Dan Culloton, writing for Morningstar, “After more than five years of generally rising markets, many actively-managed stock funds have exhausted pent-up losses that they usually use to offset realized gains. That, plus the usual store of manager switches, outflows, and profit-taking, has made it difficult for managers to avoid making distributions.”[1] That’s long hand for, “In 2014, investors are getting a tax bill.”
And some of the distribution numbers are downright alarming. Consider these: Black Rock Small Cap Growth Equity (CSGEX) will distribute between 25% and 27% of the fund’s October 10, 2014, net asset value (NAV) to shareholders. That comes a year after the fund paid out a gain that was about 50% of the fund’s 2013 year-end value. Putnam Voyager (PVOYX) anticipates paying out 11% to 13% of NAV in early December. To add insult to injury, more than 40% of Putnam Voyager’s distributions will come in the form of short-term gains, taxed at higher ordinary income rates. Likewise, Putnam Multi-Cap Growth (PNOPX) will distribute 11% to 13% of NAV before year-end.[2]
Ouch! These funds are “losers” for tax-paying shareholders. By contrast, MarketPlus Investing portfolios strive to offer a relatively tax-efficient investment process, with disciplined design and low turnover as hallmarks. We expect that 2014 will be no different with less than a 1% capital gain distribution forecasted for our portfolios this December. At SJS, we view taxable distributions as one of the aspects we can control. How? By choosing to invest with fund companies that pay diligent attention to trading and tax efficiencies. This is an important aspect of our service to you because as an investor, it’s not what you can earn, it’s what you keep that matters.
Strategy 2: Offset realized gains through proactive tax-loss harvesting
Throughout the year and in times of significant market corrections, we review the tax lots of your holdings for possible losses. We look for opportunities to “harvest” sizeable losses by selling a security or mutual fund that has lost value and simultaneously buying a similar investment. You can benefit from this process because it may offset current/future income and capital gains and reduce your tax bill, all while maintaining the same investment strategy. There are limitations and specific rules that we follow, and we often work with your tax professional to take advantage of the inevitable volatility of the global financial markets.
Strategy 3: Advise our charitably-inclined clients of their gifting options
If you make charitable gifts on a regular basis or on special occasions, or believe a portion of your legacy might include giving to a charitable organization you care about, we can work with your attorney and accountant to make these gifts both philanthropic and tax-wise. Giving away appreciated securities, making gifts from required IRA distributions, changing beneficiaries, and coordinating your estate plans with your attorney are just a few of the ways we can help make a difference in your tax bill.
Strategy 4: Consider asset location
One of the tax strategies SJS has implemented for years on your behalf is the strategy of “asset location.” If you have tax-deferred accounts like 401(k) plans, profit sharing plans, or IRA accounts, this strategy can benefit you. MarketPlus Investing portfolios employ various asset classes, and some are more tax-efficient than others. Placing the less tax-efficient investments in tax-deferred accounts may help delay the related tax associated with investment income and gains until you withdraw the funds, assisting you in reducing your current tax burden.
While paying taxes is inevitable, there are ways to structure a portfolio and its activity to work to gain control over how much tax you pay, and when you pay it. Taxes are a fact of life, but you do have options. Options that may help you keep more of your nest egg for yourself and the people and causes you care about.
Important Disclosure Information and Sources:
[1] “4 Funds About to Break Capital Gainless Streaks.” Dan Culloton, 03-Nov-2014, Fund Spy: Morningstar Medalist Edition (morningstar.com).
[2] Sustainable Leaders Fund (PNOPX). Putnam Investments, putnam.com. Ibid.
SJS Investment Services does not provide legal or tax advice. Please consult your legal or tax professional for specific advice. This material has been prepared for informational purposes only.