Retirement Guys: End of the year Investment CheckupWritten by Nolan Baker Mark Clair | | firstname.lastname@example.org
Before we know it, we will be celebrating the crystal ball dropping in Times Square whether it’s on television, radio or in person. The ball descends 141 feet in 60 seconds. As we are well aware, it’s the last 10 seconds that everyone pays the most attention to. We’d like encourage you to not wait until the last few seconds of 2013 to think about your investments. Take a few minutes to conduct a year-end investment checkup to ensure that all your investments are where they should be for the start of 2014. Last minute investment moves can be implemented to take advantage of tax and investment strategies. Also important deadlines exist that many investors need to look out for. Here is a list of 4 items investors should review before the end of the year.
First, investors who own taxable accounts should review capital gains and capital loss strategies. Thanks to several years of growth in the stock market, many investors now have capital gains built up. If that same investor has carry forward losses on his or her tax returns, sales could be made before the end of the year to quickly offset those losses. Otherwise, an investor may only be able to deduct up to $3,000 a year in losses. Recently we met an investor in his 70’s that had $50,000 of carry forward losses. At $3,000 a year it would take him over 16 years to deduct all of those losses. Yet, by working with us and an accountant and by selling some of his appreciated stocks this year, he can eliminate all of the $50,000 carry forward loss this year.
If an investor does decide to make some sales before year end, that investor will also need to consider where to reinvest the money. We suggest looking at risk reduction by rebalancing the total portfolio. Throughout the year investments like stocks, bonds, and fixed accounts all perform differently. This year, in many cases stock market indexes outperformed most other investment assets classes. Rebalancing doesn’t guarantee against loss, but it is a strategy designed to lower risk. This can be accomplished by having the correct percentage of investment assets in each category to meet your individual goals and risk tolerance. In our opinion, it is important to rebalance in both good and bad economic times, remember buy low and sell high.
Second, investors who own retirement accounts and are over the age 70 ½, it is important to make sure the required minimum distribution has been taken from the retirement account. The dollar amount of the required minimum distribution is calculated by the December 31st 2012 account balance divided by the IRS’s life expectancy table. Normally the custodian or the company who holds the account sends an annual notice each year of the required amount. But remember, according to www.irs.gov website, it is the IRA account owner’s responsibility to ensure that the required minimum distribution has been completed. Failure to take out the required minimum distribution can result in a 50% tax penalty.
Third, individual retirement account owners need to complete full or partial Roth Conversions before December 31st. Roth conversions are possible for an IRA account owner at any age. The major advantage of a Roth IRA for an account owner is qualified withdrawals can be tax-free. This can be accomplished if distributions of contributions and earnings are taken after the age of 59 ½. Also, the account owner will need to have met the five-year holding rule in order to avoid a 10% penalty. Investors with little to no taxable income, yet with large IRA’s balances, should check into this strategy before year end.
Fourth, review the investment expenses in each account. Then look for ways to lower expenses in the New Year as well as talk to an accountant to find out which investment expenses could be tax deductible before year end. Investors should review both the disclosed and undisclosed fees and expenses to figure out the total cost. This can take a little work, so seek the advice of a licensed investment professional for help in determining the total cost. Making investment fees tax deductible can also take a little work. Most of the time, fees can only be deducted if an investor itemizes their deduction and if the fees are disclosed , paid from a source other than a retirement account, and are greater than 2% of adjusted gross income.
For more information about The Retirement Guys, tune in every Saturday at 1 PM on 1370 WSPD or visit www.retirementguysnetwork.com. Securities and Investment Advisory Services are offered through NEXT Financial Group Inc., Member FINRA / SIPC. NEXT Financial Group, Inc. does not provide tax or legal advice. The Retirement Guys are not an affiliate of NEXT Financial Group. The office is at 1700 Woodlands Drive, Suite 100, Maumee, OH 43537. 419-842-0550