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Year-End Investment Tax Decisions
December is a hectic time of year. With the shopping and the planning and the hosting, it seems that the days fly by. But as you head toward the new year, take a little time to consider whether you need to make some adjustments to your investments before the end of the tax year.
Tax planning is critical to investment strategy. It should not be the sole determiner of your strategy, but it can have a significant impact on your bottom line. In reviewing your investment plan, you should consider these year-end tax-planning options.
First, you can time the sale of investments for the most advantageous tax result. If you plan to sell investments that have unrealized losses, you might want to sell them before the end of the year, especially if you need to offset gains from other investments. But if you are planning to sell investments with gains, you might consider waiting until after Dec. 31, so the gains won’t be taxable until 2018.
If your mutual funds make distributions at year-end, you should weigh the tax implications. If you plan to sell those funds, it might make sense to sell before the funds make their distributions. Or you may want to sell the funds before the distribution and invest the proceeds in a similar fund without an upcoming distribution. Some people sell mutual funds to avoid distribution and repurchase the funds the next day. If you are selling an investment with an unrealized loss, be wary of wash sale rules, which disallow losses if you re-purchase the same or substantially similar investment within 30 days.
Your tax situation also could affect whether you would benefit from converting a traditional IRA to a Roth IRA. If you expect to be in a lower-than-usual tax bracket in 2017, especially if you expect this situation to be temporary, you could consider making the conversion before year-end. With a Roth IRA, your distributions will be tax-free, although you probably will end up paying taxes on the conversion.
Of course, as always you can consider making a charitable contribution prior to year-end. The contribution may be deductible from ordinary income taxes.
Finally, remember to take a Required Minimum Distribution (RMD) from your qualified retirement plan, if the RMD applies to you. Generally, you must start taking RMDs from most plans when you reach age 70½.
Here at The Bensman Group, we are happy to talk with you about your investment portfolio and strategy, including the tax consequences of the investments you hold. Call your Bensman advisor if you would like to discuss your year-end investment planning needs.