Page 25 - Leisure Living Magazine Autumn 2016

Tax Thoughts Heading Into Late 2016
By Christopher McIntire, President, McIntire Retirement Services www.mcintireretirementservices.com
Happy fall folks!
It’s getting late in the year and most of us who spend time on or at the lake have put away the boats, or soon will. I thought this would be a good time to give you some tax ideas as we close out 2016 already.
The end of the year is a good time to see if it makes sense to sell some stocks that may be up significantly and take those gains and keep them. This will create a capital gains tax (15%- 20% for most people). You can offset this gain by selling some stocks that have lost value, thus negating the capital gains tax. Since not everyone buys winners, this could be a good way to move forward for the next year and rebalance your portfolio at the same time. I’m speaking of assets outside of your IRA & 401k since we can’t deduct losses inside our IRA’s, yes there are exceptions.
Speaking of IRA’s, late in the year may be a good time to evaluate if converting money from your traditional IRA to a Roth IRA is a good idea. There are no age restrictions here, or income limits either. This means that a 51 year old person, which is me, can “convert” all or just a portion of an IRA to a Roth IRA. The advantage of Roth IRA’s is tax free income in the future. Of course I would have to pay income tax on the converted amount in today’s tax brackets, but the appeal of tax free money well into the future may make sense. Can anyone tell me where income tax brackets will be 10-20 years from now?
If we get a correction in the stock market, that is also an opportunity to convert depreciated IRA assets to the Roth IRA and let them recover tax free. There are many things to consider if this thought has any appeal to you. First of all are the tax ramifications, so please do your homework and speak with your tax advisor prior to converting. Secondly, IRA’s converted to Roth IRA’s have to sit in the Roth for five years so keep in mind that liquidity may be an issue. All IRA’s, both traditional and Roth, have a lot of rules that govern them and it is important to understand all the ramifications prior to embarking on
major changes. Tax free money has a large appeal for retirees and the younger you are the more time you have to compound those dollars for use during retirement.
We are also getting to the time of year where some mutual fund managers will look to sell winners and buy other stocks that may be down in value. For IRA owners this is no big deal since this doesn’t create any tax as none was withdrawn. This issue is more important for non-IRA accounts as capital gain taxes are paid by the shareholders. An example of what I mean is suppose you bought a mutual one week before the manager did a major rebalancing and sold off a stock that had a lot of capital gain, that’s the idea of investing in the first place. Even though you were only in the fund for a week, you are a shareholder of that fund and will pay your portion of the capital gains.
This is where an index fund may help as they are typically more tax efficient since there is limited buying and selling.
I hope that gives you some good ideas to consider going into the fourth quarter and a Presidential Election!
Chris
Investment advisory services offered through Brookstone Capital Management, LLC (BCM), a Registered Investment Advisor. BCM and McIntire Retirement Services are independent of each other.
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Autumn 2016 LeisureLiving | 25
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