What To Do Now – 9 Things to Consider
1. Consider rebalancing your portfolio, if necessary. Have you gotten out over your skis with equity? The S&P 500 is up 11.92% as of August 22nd, with some stock returns much higher. Stay within your risk band and take the profit to rebalance.
2. Bank your losses. If you’ve held onto losing stock positions or long held bond positions still at a loss, go ahead and bank those losses and use the proceeds to buy something similar. If you’re tied to those positions, wait 31 days and buy them back again (wash rule).
3. As all of us are so busy, we tend to forget to sweep cash held in checking accounts to a high yield account. If you have accumulated large balances in your checking or savings accounts, you should do this now. These accounts are still paying 5%. If you plan on holding cash for longer time periods, lock in higher yielding investments now like CDs, Treasury bonds and short-term fixed annuities.
4. If you’re in a lower tax bracket, consider a Roth conversion. You can fill your current tax bracket with these conversions every year.
5. If you’re taking required minimum distributions from your IRA, not an inherited IRA, you can lower your AGI (adjusted gross income) by using Qualified Charitable Distributions (QCDs). This is particularly helpful if your RMDs (required minimum distributions) are putting you in a much higher tax market and/or causing Medicare IRMAA (Income-Related Monthly Adjustment Amount). Tipping into the first tier of Medicare IRMAA will cause a couple to each incur a surcharge on their Medicare B and D premiums of $70 and $13 respectively. For a married couple this amounts to an additional $996.00 per year. It continues higher from there. The last tier will be even more expensive by assessing additional surcharges causing payments to rise to $675.00 monthly for each spouse for Medicare B and D.
6. If you’re charitably inclined, use charitable donations or a Donor-Advised Fund (DAF) to bunch donations over multiple years but take the deduction in the current year. Either of these strategies could reduce taxable income in a meaningful way. You can also couple this strategy with Roth conversions or realized capital gains to help offset taxable income.
7. Other ways to minimize taxes, based on your tax rate, include replacing taxable interest and dividends with tax-free interest and dividends. Additionally, if you’re not doing so already, maximize your retirement plan contributions.
8. Adequate cash reserves are important. If you don’t have or want 6 months of cash needs, consider getting a home equity line of credit. This should only be used in emergencies.
9. Make sure you’re taking advantage of all your work benefits. October is open enrollment season. Many people underutilize flexible spending accounts, health savings accounts, deferred compensation, discounted stock plans, and group insurance options, such as life, disability, and Long-Term care.
