Broker Check

Spring Savings

April 09, 2019
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2018 Tax Reform is anything but transparent, and by that I mean lots of folks are getting caught unawares.  There are so many components that go into the tax calculation that most tax advisors are cautious to predict the outcome.

Let’s take capital gains distributions from Mutual funds as an example.  Often, very close to the year-end a manager of a mutual fund may decide to capture gains in the portfolio by selling certain stocks.  Two things happen when this occurs: they distribute the gain and the price of the fund goes down.  Most people reinvest their capital gains so they buy more shares when the gain is distributed.  The good thing is when this occurred last December the market was falling and has since recovered, which means you most likely bought at a lower price than today (you made money ‘on paper’ in the transaction).  The bad news is you had a cashless taxable event.  When your 1099 showed up in the mail, you found a capital gain distribution to be reported as a portion of your income, but there was no cash in the ‘envelope’ to pay the tax with, you reinvested the money.

Another question we often deal with in terms of retirement savings discussion is whether to save pre-tax or post-tax?  Should I contribute to my 401k or IRA and get a deduction, lowering my income today or should I contribute to a ROTH IRA and not get a benefit today but perhaps realize a benefit when I retire.

Predictions and assumptions.  Are tax rates going to be higher or lower in retirement?  How will the tax computation work when I retire?  If it were as simple as predicting rate table we might have a chance, but as we learned this year, taxation is also a function of calculating your taxable income.

Some will simply throw up their hands in confusion and do nothing.  Others will save as best as they can in pre-tax and taxable investments.  Regardless of the tax situation when you retire, I guarantee the person who saves will be better off than the person who doesn’t.  We can’t predict rates or formulas, but doing something is always better than not doing anything.  We can save.  We can influence what occurs in Washington or Sacramento (for our California clients) by writing or calling your congress person to express your thoughts on spending and the complexity of taxation.  Make an appointment to visit with them when they come to town or attend a town hall meeting.  Finally, understand the assumptions that go into your plan, meet with your advisors to be clear on what is happening with your wealth.  A tax advisor can point out ways to avoid paying too much tax.  A financial advisor can make sure your plan fits for your situation.  An estate planning attorney can make sure that your wealth is passed on according to your wishes.

Peace of mind requires time to create.  Take the time.

Lastly, we are sad to say goodbye to Elizabeth who has chosen to seek other employment.  She was a cheery face and a willing worker, and she will be missed.  We have hired Connie Givogri to fill the position at the front desk.  I have known Connie for many years and always found her with a smile and ready to help.  She is steeped in learning our business, so Matt, Hannah and I are backing Connie up in the short term.

P.S.  As you may have heard, Matt and Anne are expecting a baby girl in September! Congratulations!