Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
Conducting a semiannual portfolio checkup will be helpful for clients who fall into the trap of waiting for strong returns out of their high-risk stocks and bonds, according to Morningstar. A midyear check on a portfolio also helps clients to consider defensive portfolio strategies in order to boost their keep. A mistake to watch for is avoiding tax-deferred accounts when allocating investments. Clients should take note that most lapses in their portfolio are due to overwhelming, unwieldy data that needs to be fixed. -- Morningstar
Selling a stock may make sense if the reasons for buying the stock have changed, according to Motley Fool. It is also perfectly sound to part ways with a stock if there is loss of faith in the management leading the company or unjustified stock valuation. Decisions to give up a stock may also be driven by tax considerations or emergencies that require raising capital. -- Motley Fool
The way the money from an annuity is taxed depends on the way it is taken out from an account, according to Kiplinger. Early payouts are considered taxable income and taxed at an ordinary income tax rate, not as a capital gain. If the annuity is pre-taxed or tax-deductible, such as a traditional IRA, 401(k) or other retirement account, all payouts are taxed as ordinary income no matter how the funds are extracted. -- Kiplinger
Although contributing to 401(k) and other tax-deferred plans has advantages, clients may be better off investing in non-tax deferred accounts to gain more flexibility, according to MarketWatch. By investing in regular brokerage or mutual fund accounts, clients will not pay penalty if they withdraw the money before turning 59½ and will not be required to take the RMD when they reach 70½. Other reasons to sidestep a 401(k): When clients aren't sure if their tax bracket will be lower in retirement, and when top earners in the company can't contribute as much as they want to their employer-sponsored retirement plans. -- MarketWatch
Now might be the time to act and take advantage of the tax break net unrealized appreciation for employer stocks sitting in 401(k) plans, according to Forbes. Appreciation on employer stock can be considered capital gain and be taxed at a top rate of only 20%, compared to the top rate of 39.6% when taxed as income upon withdrawal from a pretax 401(k). To use the NUA break, the stock should be deposited into a regular taxable brokerage account. -- Forbes