IN HINDSIGHT, MY WIFE and I made a mistake by over-saving in tax-deferred accounts. It’s not that we saved too much overall. Rather, we ended up with retirement savings that aren’t diversified among different account types. In fairness, this was caused by the limitations of our work-sponsored retirement plans, coupled with the stock market’s handsome appreciation in recent years.
The classic approach is to build a three-legged stool for retirement—Social Security, a pension if available,
I’D LIKE TO START with a seemingly simple question: If you purchased an investment for $19,000 and later sold it for $287,000, would there be a gain or a loss? If you answered that there would be a gain, I’d agree with you. Specifically, it appears the gain would be $268,000. But what if there was no gain and the investment was actually sold at a loss? Could that be the case?
I’VE BEEN WAITING since late last year for a stock market correction. No, I’m not sitting on a pile of cash and looking to time the market. Instead, I’m simply hoping to trim my tax bill.
Last October, I sold the recently vested shares of my company stock and used the proceeds to buy Vanguard Total Stock Market ETF (symbol: VTI). This sell-high-buy-high exchange was meant for diversification, but I also hoped that the market would drop later.
WHEN A FRIEND TOLD me about his newfound interest in buying and selling sports trading cards, it reminded me of the joy that collecting brought me in my childhood. And when he asked me to explain the relevant taxation, it got me thinking: The core of the tax code is more logical than we give it credit for. It’s the ever-changing details that make it squirrelly.
If you buy and sell collectibles—whether it be sports cards,
MANY FOLKS SPEND December frantically hunting for ways to cut their taxes, whether it’s realizing losses in their taxable investment accounts, making charitable donations or raising their 401(k) contributions for the year’s final few paychecks.
A better strategy: Manage your taxes year-round rather than just at year-end. Filing a tax return is a reactive process—a record of income and deductions that have already occurred. It takes foresight and action to shape what those lines will look like on next year’s tax return.
AS THEY APPROACH retirement age, workers sometimes get to choose between a monthly pension and a lump-sum payout. It’s a choice I recently made—one I researched carefully. In the end, I made an unusual decision that took a few extra steps.
Let me start at the beginning. In 1984, I began working for American National Insurance Company as an investment analyst. I left the company in 1991, but still qualified for a small pension.
TAX-LOSS HARVESTING is a popular strategy at this time of year. It works best with mutual funds and exchange-traded index funds, for which very similar investments exist. By swapping your losing funds for similar investments, you can realize your tax losses and maintain your market exposure without violating the wash-sale rule.
By contrast, tax-loss harvesting is difficult to implement with individual stocks. Is there a “nearly identical” investment for a company such as Tesla or Amazon?
THIS IS THE TIME of year when many folks rush to purchase last-minute gifts. Not me. While others are out buying, I’m at home selling. You see, this is when I make moves in my brokerage account to limit my tax bill.
What have I been up to? First, I logged on to my Schwab account and reviewed my year-to-date realized gains and losses. I had generated $8,000 in long-term capital gains earlier in 2021 by selling an appreciated exchange-traded fund.
EARLIER THIS YEAR, I swapped the Vanguard Short-Term Bond Index Fund (symbol: VBIPX) in my 401(k) for an inflation-indexed Treasury ETF (VTIP). The trade worked out well: The replacement fund has since fared better, thanks to this year’s accelerating inflation.
To buy the inflation-indexed ETF, I had to open a brokerage subaccount within my company’s retirement plan—a feature some 401(k)s offer, though these “brokerage windows” typically aren’t heavily promoted for fear employees will end up trading too much.
TRAVELING DURING the holidays? As we drive east out of Ohio and into Pennsylvania, we know to fill the gas tank before we cross the border. According to the Tax Foundation, Pennsylvania has the third-highest gasoline tax in the country, behind California and Illinois, and about 20 cents per gallon higher than Ohio.
All states have to balance their budget. But they take very different approaches. This provides 50 experiments in taxation—and those taxes influence our behavior.
IF YOU’RE LIKE ME, you almost dread looking at the morning newsfeed. This is why I’m happy to share some good news: The U.S. poverty rate has been cut nearly in half. What’s more, it was accomplished while the economy was practically flat on its back, with tens of millions out of work.
When I was a Washington, D.C., reporter in the mid-1990s, I reported from some of the poorest neighborhoods in Baltimore, Camden and Washington.
IT’S PROPERTY TAX time. Amid the holiday mail from friends, many of us get notices of payments due from our friendly local tax assessor.
No one likes getting taxed. But in many places, property taxes make up a huge part of the funding for public education. What always surprises and irks me are those who say the tax is unfair because they don’t “use” the public schools.
One neighbor says he has no children.
OPEN ENROLLMENT begins in early November for many employees. This is a great time to see if you’re making the most of your workplace benefits, especially flexible spending accounts, or FSAs.
FSAs allow you to deduct pretax dollars from your paycheck for medical, adoption, commuting and dependent-care expenses. There are some new rules for the accounts this year in response to the pandemic.
First, the basics: During open enrollment, you tell your employer how many dollars you want deducted for these accounts over the next year.
THE NEWSPAPERS ARE full of reports that a new tax on billionaires may be uncorked. The Washington Post even ran an article estimating what the 10 richest Americans would pay over the next five years should it pass.
I take no stand on the politics of the proposal. But I have seen enough trial balloons to be skeptical that Elon Musk will soon write a 10-digit check to the U.S. Treasury. As Chuck Collins has written in The Wealth Hoarders,
AFTER YOU QUIT the workforce and before you start Social Security, you may find yourself with little or no taxable income. As many financial experts have pointed out, this can be a great time to convert a traditional IRA to a Roth and pay taxes at a relatively low rate.
But here’s another tax-savings opportunity to consider: If you have winning stocks and funds in your regular taxable account, this period can also offer the chance to realize long-term gains and pay taxes at a 0% federal rate.