Tax Strategy Scan: Picking the Best Shelter

Published: 7/11/2016 7:28:02 PM

Our weekly roundup of tax-related investment strategies and news clients may be thinking about.

IRA, 401(k), 529: What's the best tax-sheltered account type? Despite an occasional congressional nod to simplifying tax-sheltered savings, investors still have to find their way through a dizzying maze of tax-advantaged investment wrappers, according to this article from Morningstar. There are multiple types of IRAs, company-retirement plans and college-savings accounts, as a few examples, all with advantages and disadvantages. Each has its own tax treatment, its own rules over who can contribute and how much and its own policies on distributions. Pay close attention to the wrappers clients choose for their investment accounts and maximize their investments in tax-sheltered vehicles to enhance take-home returns. The longer the investment horizon, the greater the tax savings are apt to be. -- Morningstar

Comparing tax breaks for home ownership and rentals: With home values rising and rents on the upswing, advisors should educate clients on the different tax advantages that come with each, according to MarketWatch. For example, rentals aren't technically tax deductible, but using part of a rented home for business purposes can enhance returns. By comparison, the IRS allows deductions for certain home ownership expenses. -- MarketWatch

    A guide to opening a myRA: More than 10,000 people have signed up for the myRA, America's newest retirement account, which provides convenience and safety because there's only one investment option and no risk of losing money, according toU.S. News & World Report. Here's how clients can set up their accounts and maximize benefits. Although myRA contributions are not tax deductible, as the account is funded with after-tax dollars, retirement savers will pay no taxes on the investment gains. -- U.S. News & World Report

    Mid-year strategies to cut your clients' 2016 tax bills: The mid-year offers opportunities to reduce a client's tax bill for 2016, according to Kiplinger. For example, clients who filed for an extension shouldn't wait for the deadline to do their taxes and should adjust their withholdings for the current year if they expect to receive a bigger refund. They also may want to max out tax-deductible contributions to their retirement plans and consider giving cash gifts or appreciated securities to family members to qualify for tax breaks. -- Kiplinger

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