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Here’s how advisors are helping clients reduce their 2022 tax bill


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Weigh Roth IRA conversions

With the S&P 500 Index down greater than 20% in 2022, many investors are eyeing Roth individual retirement account conversions, which transfer pre-tax IRA funds to a Roth IRA for future tax-free growth. The trade-off is paying an upfront tax bill. 

Nevertheless, lower account balances may provide two opportunities: the possibility to purchase more shares for a similar dollar amount and possible tax savings, depending on how much you transfer. And the tax savings could also be compounded for investors during lower earning years, experts say. 

We repeatedly discuss Roth conversions for retired clients who have not began taking Social Security yet because their incomes are temporarily low.

Matt Stephens

Financial Advisor at AdvicePoint

“We repeatedly discuss Roth conversions for retired clients who have not began taking Social Security yet because their incomes are temporarily low,” said Matt Stephens, an authorized financial planner with AdvicePoint in Wilmington, North Carolina. “Job changes may also provide a novel Roth conversion opportunity.”

Considered one of his clients lost her job at the tip of 2021 and didn’t start one other until April, making her 2022 income much lower than usual, and her portfolio is down. “By doing a Roth conversion this 12 months, she’ll have the ability to show a tough situation into massive tax savings,” he said. 

Consider ‘tax-gain harvesting’

When the stock market is down, investors also consider “tax-loss harvesting,” or selling losing positions to offset profits. But depending in your taxable income, you could also profit from a lesser-known move often called “tax gain harvesting.”

Here’s how it really works: In case your taxable income is below $41,675 for single filers or $83,350 for married couples filing together in 2022, you will fall into the 0% capital gains bracket, meaning you could skirt taxes when selling profitable assets.   

For some investors, it is a likelihood to take gains or diversify their taxable portfolio without triggering a bill, explained Edward Jastrem, a CFP and director of monetary planning at Heritage Financial Services in Westwood, Massachusetts.

With a retired client under the income thresholds, he was able to cut back their large position of a single stock, meeting their goals of “providing liquidity and reducing concentrated risk,” he said.  

Assess your charitable giving strategy

Moderately than counting as an itemized deduction, QCDs may reduce adjusted gross income and might satisfy yearly required minimum distributions.  

Recently, he met with a pair paying greater than $30,000 in required minimum distributions who were individually donating money to their church, slightly than transferring tax-free funds from their IRA.

“They were claiming 1000’s more in taxable income then essential,” Wren said. 

If you happen to’re age 70½ or older, you could use QCDs to donate as much as $100,000 per 12 months. And transfers at age 72 or older may count as required minimum distributions. “Clients over 70½ actually need to pay close attention to their personal circumstances,” Wren added. 

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