Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
Clients are entitled to deduct investment management fees charged by their financial advisors, according to The Monterey Herald. However, these fees cannot be deducted if investors are subject to the Alternative Minimum Tax. Retirement savers are advised to pay these fees outside their retirement plans to make the fees tax-deductible, while those who are already retired should pay these fees inside the account so the payment will be excluded from their taxable income. -- The Monterey Herald
Although a Roth IRA does not offer upfront tax deductions for contributions like a traditional IRA, Roth investors will enjoy many tax benefits, such as tax-free growth and withdrawals in retirement, according to Street Authority. Investors are likely to end up with $3 for every $1 contributed to Roth, or possibly even higher for younger investors. Also, a Roth IRA offers broader investment options and is not subject to required minimum distributions unlike a traditional IRA and 401(k) plan.
Municipal bonds are a good investment option for clients who want to keep their capital intact and get tax-free income at the same time, according to Yahoo Finance. Tax-exempt muni bonds are not subject to federal taxes, and they also are taxed in some states. Including muni bonds in their portfolio is an effective way to counterbalance equity risk, as these bonds perform well amidst market volatility and offer higher returns than regular bonds. -- Yahoo Finance
Although delayed annuities offer tax-deferred growth on the principal, the earnings are subject to ordinary income tax upon withdrawal, according to Florida Today. This investment option is not recommended if there are no riders to guarantee an income or a death benefit. Clients are advised to invest within an IRA, which offers the same benefits as delayed annuities without the hefty fees and internal costs. -- Florida Today