Dec 7, 201710:13 AMOpen Mic
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Year-end, tax-smart investing tips
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Delay purchasing mutual fund shares. Many mutual funds pay capital gains distributions in December. So, if you were to buy new shares of a fund just before the distribution date, you may get a larger distribution but you’ll owe capital gains taxes on the money you just invested — without really having received much benefit from your investment. To avoid this potential problem, ask the mutual fund company for the date of the distribution, and consider delaying additional investments until afterward.
Be careful with your RMDs. Once you turn 70½, you must start taking withdrawals — known as required minimum distributions, or RMDs — from your traditional IRA and your 401(k) or similar employer-sponsored plan. Please note, however, that if you are still working and participating in your 401(k) plan or any other “qualified” retirement plan (e.g., a traditional profit sharing plan) beyond age 70½, and you are less than a 5% owner or shareholder in the business sponsoring the 401(k) plan, then you may be able to delay or postpone the commencement of RMDs until you actually separate from service. You’ve got until Dec. 31 to take your RMDs for 2017; if you miss this deadline, you may face a hefty penalty from the IRS. However, if you just reached 70½ in 2018, you have until April 1, 2018, to take your first RMDs. As the name suggests, you must take at least a minimum amount from your traditional IRA and 401(k) — the exact figure is primarily based on your account balance and your age — but you could take out more. Be aware, though, that these withdrawals are usually taxed as ordinary income, so the more you take out, the bigger your tax bill. Consequently, you may want to work with a financial professional to find ways of keeping these RMDs as low as possible, without jeopardizing your standard of living.
Lauri Binius Droster, CFP, is branch director, and senior vice president of RBC Wealth Management, a division of RBC Capital Markets LLC, Member NYSE/FINRA/SIPC.
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