Tax Strategies Scan: Taxes and Asset Allocation

Our weekly roundup of tax-related investment strategies and news your clients may be reading about in the financial media.

Save money with recent IRA and 401(k) changes: The recent changes to IRA and 401(k) plan rules enable workers to save on taxes, according to Consumer Reports. For instance, after-tax contributions to 401(k) plans can be moved to Roth IRAs under rules issued by the Internal Revenue Service late last year. “This amounts to a tax-free Roth conversion,” an expert says. -- Consumer Reports

How filing your own taxes will boost your finances: Taxpayers will increase their understanding of the tax implications on their investments if they prepare their own tax returns, according to U.S. News & World Report. By preparing their own taxes, clients also appreciate the benefits of tax-advantaged accounts and may get inspired to refinance their home mortgage. They are also likely to drop any misconceptions about the Tax Code and value their possessions more.  -- U.S. News & World Report

How taxes should affect an investor’s asset allocation: Investors need to consider the tax implications when developing an asset-allocation strategy for their portfolios, writes David Blanchett, head of Morningstar's retirement research. While stock investments are tax-efficient, some investment options such as bonds are the opposite. There are also differing tax efficiency levels within each asset class, such as index investments which are very tax-efficient, Blanchett says. – The Wall Street Journal

Taxes from A To Z (2015): Early distributions: Withdrawals from a retirement plan before reaching retirement age, or early distributions, may be subjected to additional taxes depending on the type of plan and several rules, according to Forbes. Depending on whether the plan is a traditional IRA, SIMPLE IRA, Roth IRA,or  a qualified retirement plan like a 401(k), the client could be hit with an additional 10% or 25% tax if they don't qualify for any exceptions. -- Forbes