Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
Mutual funds aren’t always tax-friendly: Clients should avoid buying into a mutual fund before it distributes capital gains, or risk paying more to the IRS, according to The Pittsburgh Post-Gazette. Fund managers are constantly buying and selling securities within the fund, and they must pass along to shareholders any realized capital gains that are not offset by losses by the end of the accounting year. That’s why a client should think twice about buying into a mutual fund just prior to a distribution, which typically occurs in December. — The Pittsburgh Post-Gazette
11 smart tax moves to make right now: These strategies from The Motley Fool may help reduce your client's tax bill. For example, clients should make the most of retirement accounts to optimize their tax benefits and hold their stocks for more than a year before selling them to pay less on capital gains. In another example, opening tax-advantaged savings accounts, such as 529 plans and health savings accounts, enables clients to save considerably on their tax bill. — The Motley Fool
Buying multiple investment properties using a 1031 exchange is possible: A 1031 tax deferment allows clients to acquire two or more homes if the combined value of these properties is equal to the value of the property they sold, according to NorthJersey.com. To make sure they don't pay any taxes on the gains from the sale, clients should deposit the sale proceeds directly into a tax-deferred exchange company and buy a replacement property, or properties, within 180 days. — NorthJersey.com
Earn too much for a Roth IRA? Try the back door: Clients who surpass income thresholds set for Roth IRAs may want to consider the back door Roth IRA strategy, according to The Des Moines Register. Simply make nondeductible contributions to a traditional IRA and then immediately do a Roth IRA conversion. For clients who have no other traditional IRAs, establishment of a back-door Roth IRA is essentially tax-free. — The Des Moines Register
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