3 year-end tips for retirees
Stephen Tuttle

The end of the year is often viewed as a time of spending… for gifts, vacations, holiday events, etc…  It can also be a time to consider tax-saving strategies.  As the year winds down, here are some tips for retirees to consider:

  1. Take your required minimum distributions (RMDs)

When you reach age 70 ½, you’re required to withdraw a certain amount of money from your retirement accounts each year.  That amount is called a required minimum distribution, or RMD.  The deadline for taking RMDs is December 31 each year.  If you have an IRA, you may delay taking your first RMD (and only your first) until April 1 of the year after you turn 70 ½. 

If you miss the RMD deadline, there is a 50% tax penalty on the amount that you should have taken, i.e.  you’ll owe taxes not just on your distribution amount but also have to pay a stiff penalty to the IRS.

A good advisor can help you calculate the amount to take each year, and help you plan for what to do with the cash.  Remember, you do not have to spend the RMD.  You can also invest the cash back in your portfolio in a taxable account, or if you or your spouse have earned income, you can reinvest in a Roth IRA.

  1. Look for Tax-Loss Sales (or Tax Gains)

It may make sense to sell positions with losses at year-end.  Tax-loss selling is a technique to lower taxes while maintaining the expected return and risk profile in your portfolio.  Particularly, if you have sold securities with capital gains earlier in the year, you can use losses to offset an equivalent amount of gains, or if your losses exceed your gains, you may deduct up to $3,000 in losses from ordinary income. 

This may be a tough year for tax loss selling, as it’s generally been a good year for investors.  However, individual stock investors may be able to identify losing positions. 

There are also cases where it makes sense to harvest tax gains.  If your total income comes in under $39,375 (single filers) or $78,750 (married couples filing jointly), you may be in the 0% tax bracket for long-term capital gains. 

  1. Consider Charitable Giving

Changes in tax laws this year calls for new thinking to charitable giving.  Many fewer taxpayers are likely to benefit from itemized deductions.  If you’re taking required minimum distributions (see above), you can use a qualified charitable distribution.   You may direct all or a portion of your RMD, up to $100,000, to the charities of your choice.  The amount of your contribution reduces your adjusted gross income. 

A savvy financial advisor can help investors navigate year-end planning.  With many new tax laws in effect this year, tax-planning can get complicated.  Of course, there are also many other items that may warrant attention.  These include insurance needs, updates to wills and estate plans, long-term care, cash flow needs, etc…  Collectively, all these issues can be overwhelming.  Signet Advisors use this time of year to help identify and attend to the most pressing financial needs of our clients.   

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