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:
- Offset capital gains produced from the partial or complete sale of an investment
- Offset mutual fund capital gain distributions
- Reduce ordinary income by up to $3,000
Long-term capital gains are taxable to investors at the 0%, 15% or 20% rate (before the 3.8% Medicare surtax), based on their taxable income and marginal tax bracket. These rates are preferential compared to ordinary income tax rates, and any losses not used can be carried forward for the rest of the investor’s life.
The following example demonstrates the real life benefits of tax loss harvesting, applied to three scenarios. read more…
Merger Creates One of the largest Wealth Management Firms in the Northwest
SEATTLE (April 18, 2016) – Merriman Wealth Management, LLC today announced that Summit Capital Management, LLC, a Northwest-based boutique financial services firm, has merged with Merriman, a Focus Financial Partner firm. This merger makes Merriman one of the largest wealth management firms in the Pacific Northwest.
Summit Capital’s approach has been team-based investment research and management partnered with a client-centric service model. Dave Martin, Matt Rudolf, Rob Martin, and the staff and leadership team of Summit will continue to support their clients as part of the Merriman team.
“The leadership team at Summit Capital has created an amazing firm focused on exceptional client service and robust portfolio management. This merger allows us to extend Merriman’s comprehensive wealth management process to Summit’s clients, and make additional portfolio strategies available to the clients of both firms,” said Colleen Lindstrom, Merriman’s CEO.
Summit has been in conversations with Merriman and its parent firm, Focus Financial Partners, for the past year. With complementary strengths and a clear focus on the team approach to advising clients, it became clear this merger would be a great cultural match. Rob Martin, Managing Partner of Summit Capital commented, “This combination brings together two terrific firms with a similar, client-oriented approach, providing comprehensive investment management and wealth advisory services.”
This merger is part of Merriman’s overall regional growth strategy. Merriman will continue to maintain Summit Capital’s Spokane office, adding to its existing Seattle office and recently-added Portland location. Summit Capital will assume the Merriman name, and Summit Capital’s Seattle employees will be based in Merriman’s current Seattle office.
Generally speaking, investors have separate retirement and non-retirement accounts. In most cases, the retirement accounts are split between Traditional IRAs (i.e., Rollover, SEP, Simple, 401(k), 403(b), 457, etc.), which are pre-tax dollars, and Roth IRAs, which are after-tax dollars. Non-retirement accounts include trusts, individual accounts and joint accounts.
Upon the owner passing, non-retirement accounts usually receive a step-up in their cost basis, meaning long-term capital gains are wiped out for that person’s heirs. In most circumstances, heirs could rebalance or cash out the portfolio and owe little or no capital gains taxes.
Roth IRAs maintain their tax-free growth and withdrawal nature, but do require annual required minimum distributions (RMDs). Pre-tax IRAs, however, behave differently. While they will maintain their tax-deferred growth advantage, their annual RMDs are 100% taxable as ordinary income. If the beneficiary is in the 25% marginal tax bracket, for example, then a $20,000 Traditional (Beneficiary) IRA distribution will owe $5,000 in federal income taxes. Often these distributions push the beneficiary into a higher tax bracket.
Since non-retirement accounts and Roth IRAs are more tax-friendly for heirs, it may be worth considering the possibility of naming a nonprofit organization, like an alma mater or favorite charity, as the beneficiary of Traditional IRA assets. Instead of heirs paying ordinary income taxes on future distributions, the nonprofit organization will be able to utilize 100% of the assets for their organization’s purposes because they are tax-exempt and won’t owe any taxes on distributions. This is especially attractive for those who are charitably inclined and are trying to determine which asset is best. Other benefits include that your estate will be reduced by the amount of the bequest (possibly reducing or removing any estate taxes owed), and your heirs will receive the most tax-friendly assets.
Each client’s circumstances are different, so we recommend you discuss this with an advisor to see if it makes sense for you and your family.
It’s tax season, and like last year, you received a corrected 1099 in the mail from your account’s custodian, such as Charles Schwab. If you already filed your taxes and are just receiving the corrected 1099 online or by mail, there’s no need to panic.
Revised 1099s are commonplace, and in the majority of cases, the custodian isn’t causing the revisions or holding up the process. Custodians are, however, required to issue a corrected 1099—no matter how insignificant the changes are—so they can give account owners the most accurate, up-to-date information for filing their taxes before the April 15 tax deadline.
To produce a 1099, custodians receive and aggregate all available information relating to distributions made from investments in an account during the previous calendar year. This information includes the character of distributions, such as dividends, qualified dividends, interest, capital gains or return of principal. One such investment is a mutual fund, which is often composed of 100s if not 1000s of securities. A diversified portfolio is often made up of 10 or more mutual funds, and if just one of these securities within a mutual fund issues a correction, the 1099 may need to be revised.
If you received a revised/corrected 1099 and already filed your taxes, you may not have to do anything. The revisions might not be meaningful enough to require filing an amended return. The 1099-DIV, related to the characterization of dividends, is the most commonly revised 1099 form. If the revisions end up being significant enough to impact your tax return, then you can always file an amended return with the correct information. If this leads to a refund, then you have three years from your original filing date to file an amended return to receive the refund. If the revision leads to owing more taxes, filing an amended return as soon as possible will save you on interest and penalties.
Waiting until closer to the April 15 deadline to file your taxes reduces the risk of receiving a corrected 1099 and having to file an amended return reflecting the changes.
Stretch IRAs are useful tools for the individual who wants to extend the life of their retirement accounts through multiple generations. Although there is often confusion surrounding stretch IRAs and how they work, the concept is straightforward. A stretch IRA is a strategy, not a product, used to “stretch” the life of Roth IRA and Traditional IRA assets by designating beneficiaries with the longest life expectancy, such as grandchildren or even great grandchildren. By selecting beneficiaries two to three generations younger than the account owner, as opposed to designating children, the IRS will have lower imposed required minimum distributions (RMDs) for the inherited IRA, leaving a greater asset base to grow and cover future distributions.
To calculate the RMD for an inherited IRA (Table 1 – IRS Single Life Expectancy Table), divide the previous year-end account balance by the divisor (beneficiary’s life expectancy) corresponding to their respective age in the year following the death. This divisor is the IRS’s actuarial-based remaining life expectancy for the beneficiary, so each year, the divisor will decrease by 1, causing an increase in the percent of the account balance taken for the RMD.
The IRS provides a list of distribution options available to inherited IRA owners. Distribution options vary depending on whether the beneficiary was a spouse or non-spouse, and also whether the IRA owner passed away before their required beginning date (RBD), which is April 1 after they turn 70½. read more…
Visiting the Social Security Administration (SSA) office likely does not rank high on a list of enjoyable activities. The inconvenience, long waiting times, frustration with trying to implement a filing strategy, and difficulty in filing for first-time benefits are all reasons it’s usually not a positive experience. We’ve found that no matter how much analysis and thought we put into helping you find the most appropriate Social Security strategy for your household, we can’t control your experience when you visit the SSA office to implement those recommendations.
To eliminate many of these headaches, you can use a filing service provided through Social Security Advisors. Instead of visiting the SSA office, a specialist can walk you through the online social security application while you’re sitting at home. All you need is a phone, a computer with Internet access, and 30 to 45 minutes of time.
What to expect
You can schedule a meeting on your own and pay the $100 filing service fee on the Social Security Advisors website, or do it during a review meeting with your Merriman advisor.
Social Security Advisors then sends a confirmation email that includes a GoToMeeting invitation. GoToMeeting, similar to WebEx and other online virtual professional meeting services, allows the specialist to share their screen while working through the Social Security application with you. When you click the invitation, you’ll be prompted to download the GoToMeeting software. You can dial in for audio, or use your computer’s speakers and microphone.
Once the specialist submits the application, they’ll email you a copy for your records.
As an extra bonus, if the Social Security Administration misunderstands the application or an error is made, Social Security Advisors continues to provide support until the issue is fixed.
What are the limitations of this service?
The online application does not work for clients filing for Social Security death benefits and dependent benefits. Dependent benefits come about when a parent who has dependent minor children passes away. These children and the surviving spouse are then eligible to claim a portion of the deceased’s Social Security benefits. For both of these cases, the applicant still needs to visit the SSA office.
Who is Social Security Advisors?
Social Security Advisors has been in business for seven years, helping clients maximize their Social Security benefits and implement various strategies.
Merriman does not have a relationship with Social Security Advisors and doesn’t provide guarantees of their services, but we’ve found that their services do help improve clients’ experiences with the SSA.