THE ELECTION IS OVER NOW GET READY FOR 2017
As originally appeared in the Jerusalem Post on Thursday, November 17, 2016.
Believe it or not the US presidential election is over. Outside of some “sore-losers” protesting, life is getting back to normal. Take a look at the calendar and it’s the middle of November. Time certainly flies. With just a few weeks left in 2016 it’s time to do some year-end planning.
IRA distributions
If you have an Individual Retirement Account (IRA) and you are over 70 and a half years old you are required to withdraw a minimum amount from the account each year. This is called a required minimum distribution (RMD). If you don’t take your RMD, you’ll face a serious penalty. If you are not sure how much you need to take, most brokerage firms calculate the amount needed to be withdrawn for you and it usually appears on your monthly statement.
If you have an inherited IRA, no matter what your age you are required to take a distribution. If the brokerage firm doesn’t tell you how much to take, speak to an accountant and they can help you calculate the number.
Even though you need to take a RMD there is no commandment that you have to spend the money. You can just move the money into a taxable account and continue investing.
Save money in capital gains taxes
Whether you have realized gains or losses in your portfolio, some tactical moves now can end up saving you thousands and thousands of dollars. If you have sold positions and now sit with capital gains, review your portfolio to see if you have any positions that are currently at a loss. While many investors would never consider selling a position that is losing money, selling your losers can actually make you money. Never think that all is lost. Some good can actually be derived from losing stock positions. When the position is sold, the investor realizes the loss, which has certain tax advantages. The loss can be used to offset other gains, thus lowering the tax bill. In fact, for many investors, tax-loss selling may be the most important way to reduce their tax bill. If done correctly (be sure to speak to your accountant before making any trades), it can save lots of money. For example, if a person has a gain in Stock A and she decides to sell it, she will be taxed on that gain in full. But if she has a loss in Stock B that she actualizes by selling, she can use the amount of the loss and offset it against the gain in A, drastically reducing the taxes she owes. This might not recover the entire loss, but it certainly cushions the blow.
Be Careful
There is a rule in the US, called the ‘wash-sale rule’, where the IRS disallows a loss deduction from the sale of a security if a ‘substantially identical security’ was purchased within 30 days before or after the sale. Let’s say that you sold 100 shares of Apple on November the 15th at a loss, and buy back those 100 shares on December 10th; the loss deduction would not be allowed.
Cross-check your goals
At the beginning of the year I wrote how it’s important to make financial “New year’s financial resolutions”. Usually those are forgotten before the calendar turns to February. I think it’s very important to review those resolutions and see how you matched up against them. Review your goals and needs and make sure you are on track. Is your portfolio allocated in a way that will still help your achieve what you are trying to accomplish? If not, now is the time to make changes.
The world has certainly changed during 2016. The stock market, while higher for the year has been like a yo-yo. Investors should take the time to make sure that their portfolios are well positioned for current conditions. One of the most overlooked aspects in long-term investing is the need to rebalance a portfolio. Rebalancing is important for two main reasons. First of all, it keeps your portfolio in tune with your long-term goals and second, it keeps your asset allocation in line with your risk level.
Speak with your accountant and financial advisor in order to fine tune your portfolio before year’s end.
The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates. Aaron Katsman is author of the book Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing (McGraw-Hill), and is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the United States. Securities are offered through Portfolio Resources Group, Inc. (www.prginc.net). Member FINRA, SIPC, MSRB, FSI. For more information, call (02) 624-0995 visit www.aaronkatsman.com or email aaron@lighthousecapital.co.il.
