TAX LEMONADE


While we wait for the wild ride of the 2022 stock and bond markets to calm, there are some actions we can take to at least make "tax lemonade" out of this lemon of a market. So, what can you do to make the best of this roller coaster?


· Tax Loss Harvesting

  • If the market continues its wild swings, you may want to consider harvesting losses in your taxable portfolio, that is, selling positions that have gone into the red so you can "lock in" the tax loss. You could then buy similar positions to maintain your general exposure to the asset class. This is so you potentially don't miss out on the asset class rebound.

· Contribute Early to Tax Preferred Accounts

  • You can contribute the same dollar amount to your IRA's regardless of how the market is trading. That means that if you make your annual contributions now you can purchase investments in your retirement accounts at a relative discount to where the markets were at the start of the year and where they'll hopefully be at the end of the year. You'll then potentially capture the market rebound from within your tax-advantaged accounts instead of your taxable ones.

  • The same logic holds for Roth conversions. If you plan to contribute to an IRA or to complete a Roth conversion in 2022, now might be a good time to do it, instead of waiting until April 15, by which time the markets will hopefully have regained some steam. If you are considering a Roth Conversion you should consult with your tax or financial advisor to help you determine if this is right for you.

What are the contribution limits this year?

Staying put for 2022 are traditional Individual Retirement Accounts (IRAs), with the limit remaining at $6,000. The catch-up contribution for traditional IRAs remains $1,000 as well.1

Eligibility for Roth IRA contributions has increased, as well. These have bumped up to $129,000 to $144,000 for single filers and heads of households, and $204,000 to $214,000 for those filing jointly as married couples.1

Another increase was for SIMPLE IRA Plans (SIMPLE is an acronym for Savings Incentive Match Plan for Employees), which increases from $13,500 to $14,000.1

If this post has done more than just make you thirsty for some lemonade, and you'd like to discuss the strategies further, please reach out. I am always eager to support you and your financial goals.

1. CNBC.com, Friday, November 5, 2021

Asset allocation, account contribution timing, and diversification do not assure or guarantee better performance and cannot eliminate the risk of investment loss. As with any investment strategy, there is the possibility of profitability as well as loss. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.

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