Tax-loss harvesting is a strategy used to produce tax savings where an investment that has declined in value is sold at a loss, and a similar investment is purchased simultaneously to maintain the portfolio’s investment mix – risk and expected return. To use the loss for tax purposes, i.e., avoid a wash sale, there is a waiting period of at least 30 days before the original investment can be repurchased. Since buys and sells in retirement accounts are not taxable, tax-loss harvesting is implemented in non-retirement accounts.
The losses realized through tax-loss harvesting can be used to reduce an investor’s taxes in the following scenarios: (more…)
Before traveling, it’s a good idea to figure out what your health insurance covers in case you have to make an unplanned visit to the hospital. Also, if you rent a car while traveling, the rental agency will ask if you want to buy rental car insurance, so it’s good to know whether you need it. Understanding how and where your health and auto insurance extend when out of town is important, especially if you want to avoid being on the hook for a big bill. First things first, though – make sure you travel with your healthcare insurance card for you and your family members, and bring proof of auto coverage. (more…)
Gain harvesting is where investors can sell taxable investments with long-term capital gains and not owe capital gains taxes. For 2018, you must have taxable income below $38,600 if single, $77,200 if married filing jointly and $51,700 if head of household to not owe taxes on long-term capital gains and qualified dividends. Any long-term capital gains above this taxable income threshold will be subject to the regular 15% tax on long-term capital gains, while the gains below the threshold are tax-free. Income is often much lower in retirement, especially before taking the required minimum distributions from retirement accounts at age 70.5, so many retirees have room to realize gains without tax consequences. (more…)
Many U.S. citizens live abroad for a period during their schooling, career or retirement. Foreign countries, even ones sharing borders with the United States, have different currencies than the U.S. dollar. When you exchange or otherwise convert U.S. dollars into a foreign currency, you may be able to buy more or fewer dollars in the local currency, depending on that day’s exchange rate movements. These currency fluctuations in relation to the U.S. dollar can be substantial. As a result, it’s important that you develop a plan when converting large sums of money from one currency to another to reduce your chances of losing a lot of value. (more…)
In this article, we discuss the Smiths’ and the Jones’ different lifestyle spending needs, and the annual savings necessary to maintain their lifestyle in retirement. Let’s walk through the steps these families should take each year to help them stay on track to achieve their goals.
1. Determine the cost of your annual lifestyle spending needs, and how much of that will continue into retirement.
Smiths – They currently earn $150,000 a year. After excluding retirement savings and expenses that wouldn’t continue into retirement, such as the cost of commuting to work, they determine that their annual spending is $90,000.
Joneses – They currently earn $500,000 a year. After backing out retirement savings and expenses that wouldn’t continue into retirement, this couple finds their annual spending is $250,000. This higher spending need is in part due to living in an expensive city and having a mortgage on their home and vacation property. About 10 years ago, this couple’s income was $175,000, with spending needs of $115,000.
Take-away: To determine your lifestyle spending needs, you need to exclude retirement savings and expenses that wouldn’t continue into retirement. Expenses that remain include utilities, taxes, food, entertainment, travel, etc. Many households carry a mortgage for the first 10-15 years into retirement. If you don’t think you’ll pay off your mortgage by the time you retire, make sure to include this housing cost in your spending estimate. You need to be aware of how much your lifestyle spending changes over time to make sure it’s sustainable in retirement. It’s far easier to spend more money than to cut back on your lifestyle. (more…)