2021 Year-End Thoughts for Your Portfolio and Personal Life Download Contents Save Some Money and Do Some Good Save Some Money and Do Some GoodSave Some Money and Do Some Good When the days get shorter, it also means time is running out to make year-end tax-saving moves. While it can be difficult to focus on tax preparation during the hectic holiday season, it’s a good time to take steps that can pay dividends next year and beyond. Managing some of these strategies can be tricky, so we recommend you consult with a professional tax or wealth planning adviser before taking action. 1. CHECK YOUR DISTRIBUTION CALENDAR If you are planning to purchase any mutual funds in the last few weeks of the year, there’s one key fact you must learn: The fund’s “record date.” If you own shares of the fund on or before the record date, you have to pay taxes on distributions those shares pay out, even if you didn’t own them when that income was “earned.” 2. SHOULD YOU TAKE A LOSS? Losses in your portfolio still have value, and given this year’s market volatility, some of the shares you own may be in negative territory. If you sell a position at a price below your purchase price, those losses can be used to offset other gains and income in your portfolio—lowering your tax bill. Selling positions at a loss, waiting 30 days and then repurchasing your original position is called tax-loss harvesting. It can be a cost-saving aspect of your investment strategy, and it is one we employ for our clients when we think it makes sense to do so. Why wait 30 days? The “wash-sale” rule is a tax rule that says you will forfeit the ability to claim a tax loss if you make a purchase of the same fund you sold (or a substantially similar fund) 30 days prior to or 30 days after the sale. Note that the wash-sale rule also applies to shares that you acquired through reinvesting income—another reason to be aware of your funds’ distribution dates. You also want to make sure that you’re not selling shares of a fund that you cannot replace. For example, if a fund is closed to new investors and you sell all of your shares, you won’t be able to buy back in. If you’ve got a loss in a fund you own in a taxable account, you may want to sell your shares to avoid a distribution rather than have it add to your tax bill. (These discussions of taxes are irrelevant for funds owned in tax-deferred retirement accounts.) 3. DO YOU NEED TO REBALANCE? The conventional wisdom is that investors should regularly rebalance the funds in their portfolios back to their original allocations. This involves selling shares of the top performers and reinvesting the proceeds into positions that have lagged over the year and become underrepresented proportionally. We take a wider view. Unless a portfolio has severely diverged from the original allocation, rebalancing is often unnecessary and of little benefit. Our research shows that there is little to no performance advantage to automatically resetting a portfolio’s allocation every year. Plus, rebalancing has costs that can include higher tax bills and transaction fees. 4. SHOULD YOU OPT OUT OF AUTOMATIC REINVESTMENT? One strategy that we employ for a number of our clients’ taxable accounts is to have their income and capital gains distributions deposited into a money market fund rather than automatically reinvesting the proceeds into the funds that generated them. This gives us the flexibility to reinvest in the fund at a later date or, as part of a reallocation strategy, use the cash to add to other funds that may have recently underperformed. 5. MAXIMIZE OPPORTUNITIES FOR TAX-DEFERRED GROWTH It’s a well-known fact that 401(k)s, IRAs and other retirement accounts are a great way to keep assets growing tax-deferred. Depending on your employer’s plan, you may be able to defer up to $19,500 in earnings by contributing to a 401(k) or 403(b) plan in 2021. If you will turn 50 before Dec. 31, 2021, and your plan allows it, you can contribute an additional $6,500. For IRAs, the maximum contribution in 2021 is $6,000 (also the limit for 2022), plus a $1,000 “catch-up contribution” for those who turn 50 during either calendar year. You must make 401(k) contributions by the end of the calendar year, but IRAs and some other types of tax-deferred retirement accounts allow you to contribute to your 2021 limit until April 15, 2022. Still, if you do it now, your money can enjoy the benefits of tax deferral and compounded gains sooner rather than later. 6. DON’T FORGET YOUR REQUIRED MINIMUM DISTRIBUTIONS (RMDS) If you have tax-deferred accounts, once you’ve reached the age of 72 you are required to withdraw a minimum percentage by Dec. 31 each year. You need to tally an RMD percentage from all accounts to which you contributed tax-deferred assets or that had tax-deferred earnings every year. (Note that RMDs were made optional by the CARES Act in 2020, but there is no such provision for tax year 2021.) For non-Roth IRAs and 403(b) accounts, you calculate the RMD separately for each account you own, but you can withdraw the total amount from one or from multiple accounts. It’s up to you. Unlike IRAs, withdrawals must be taken separately from each 401(k) and 457(b) plan account. Roth IRA accounts are not subject to RMDs. If you forget to take your RMD from your retirement account, you will be assessed a penalty equal to 50% of the amount you should have withdrawn, in addition to your normal income taxes. That’s a penalty that can really sting, so it’s clearly in your best interest to take this money, something we help our clients with each year. After all, that’s what you saved it for. Please read our list of 9 Need-to-Know RMD Facts for more on the subject. This material is distributed for informational purposes only; and is not financial or investment advice. Speak to your financial adviser before taking specific action. The investment ideas and opinions contained herein should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed. Our statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged. All investments carry risk of loss and there is no guarantee that investment objectives will be achieved. Past performance is not an indication of future returns. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Personalized tax advice and tax return preparation is available through a separate, written engagement agreement with Adviser Investments Tax Solutions. We do not provide legal advice, nor sell insurance products. Always consult a licensed attorney, tax professional or licensed insurance professional regarding your specific legal or tax situation, or insurance needs. © 2021 Adviser Investments, LLC. All Rights Reserved. Contents Save Some Money and Do Some Good When the days get shorter, it also means time is running out to make year-end tax-saving moves. While it can be difficult to focus on tax preparation during the hectic holiday season, it’s a good time to take steps that can pay dividendsA cash payment to investors who own stock in the company. next year and beyond. This exclusive checklist provides straightforward, proactive tips for investors of every stripe. Taking the time to fine-tune your portfolio now may help prevent bigger headaches and tax bills come April. Topics include: Considerations on rebalancing your portfolio Harvesting tax losses to offset investment gains Maximizing tax-deferred growth Guidelines for charitable donations It’s never too soon to become a more-informed investor. Please complete the form on this page to receive this free, no-obligation report today! For more information, please call us at (800) 492-6868. Tax information contained herein is general in nature, is provided for informational purposes and is not to be taken as tax advice. 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2021 Year-End Thoughts for Your Portfolio and Personal Life Download Contents Save Some Money and Do Some Good Save Some Money and Do Some GoodSave Some Money and Do Some Good When the days get shorter, it also means time is running out to make year-end tax-saving moves. While it can be difficult to focus on tax preparation during the hectic holiday season, it’s a good time to take steps that can pay dividends next year and beyond. Managing some of these strategies can be tricky, so we recommend you consult with a professional tax or wealth planning adviser before taking action. 1. CHECK YOUR DISTRIBUTION CALENDAR If you are planning to purchase any mutual funds in the last few weeks of the year, there’s one key fact you must learn: The fund’s “record date.” If you own shares of the fund on or before the record date, you have to pay taxes on distributions those shares pay out, even if you didn’t own them when that income was “earned.” 2. SHOULD YOU TAKE A LOSS? Losses in your portfolio still have value, and given this year’s market volatility, some of the shares you own may be in negative territory. If you sell a position at a price below your purchase price, those losses can be used to offset other gains and income in your portfolio—lowering your tax bill. Selling positions at a loss, waiting 30 days and then repurchasing your original position is called tax-loss harvesting. It can be a cost-saving aspect of your investment strategy, and it is one we employ for our clients when we think it makes sense to do so. Why wait 30 days? The “wash-sale” rule is a tax rule that says you will forfeit the ability to claim a tax loss if you make a purchase of the same fund you sold (or a substantially similar fund) 30 days prior to or 30 days after the sale. Note that the wash-sale rule also applies to shares that you acquired through reinvesting income—another reason to be aware of your funds’ distribution dates. You also want to make sure that you’re not selling shares of a fund that you cannot replace. For example, if a fund is closed to new investors and you sell all of your shares, you won’t be able to buy back in. If you’ve got a loss in a fund you own in a taxable account, you may want to sell your shares to avoid a distribution rather than have it add to your tax bill. (These discussions of taxes are irrelevant for funds owned in tax-deferred retirement accounts.) 3. DO YOU NEED TO REBALANCE? The conventional wisdom is that investors should regularly rebalance the funds in their portfolios back to their original allocations. This involves selling shares of the top performers and reinvesting the proceeds into positions that have lagged over the year and become underrepresented proportionally. We take a wider view. Unless a portfolio has severely diverged from the original allocation, rebalancing is often unnecessary and of little benefit. Our research shows that there is little to no performance advantage to automatically resetting a portfolio’s allocation every year. Plus, rebalancing has costs that can include higher tax bills and transaction fees. 4. SHOULD YOU OPT OUT OF AUTOMATIC REINVESTMENT? One strategy that we employ for a number of our clients’ taxable accounts is to have their income and capital gains distributions deposited into a money market fund rather than automatically reinvesting the proceeds into the funds that generated them. This gives us the flexibility to reinvest in the fund at a later date or, as part of a reallocation strategy, use the cash to add to other funds that may have recently underperformed. 5. MAXIMIZE OPPORTUNITIES FOR TAX-DEFERRED GROWTH It’s a well-known fact that 401(k)s, IRAs and other retirement accounts are a great way to keep assets growing tax-deferred. Depending on your employer’s plan, you may be able to defer up to $19,500 in earnings by contributing to a 401(k) or 403(b) plan in 2021. If you will turn 50 before Dec. 31, 2021, and your plan allows it, you can contribute an additional $6,500. For IRAs, the maximum contribution in 2021 is $6,000 (also the limit for 2022), plus a $1,000 “catch-up contribution” for those who turn 50 during either calendar year. You must make 401(k) contributions by the end of the calendar year, but IRAs and some other types of tax-deferred retirement accounts allow you to contribute to your 2021 limit until April 15, 2022. Still, if you do it now, your money can enjoy the benefits of tax deferral and compounded gains sooner rather than later. 6. DON’T FORGET YOUR REQUIRED MINIMUM DISTRIBUTIONS (RMDS) If you have tax-deferred accounts, once you’ve reached the age of 72 you are required to withdraw a minimum percentage by Dec. 31 each year. You need to tally an RMD percentage from all accounts to which you contributed tax-deferred assets or that had tax-deferred earnings every year. (Note that RMDs were made optional by the CARES Act in 2020, but there is no such provision for tax year 2021.) For non-Roth IRAs and 403(b) accounts, you calculate the RMD separately for each account you own, but you can withdraw the total amount from one or from multiple accounts. It’s up to you. Unlike IRAs, withdrawals must be taken separately from each 401(k) and 457(b) plan account. Roth IRA accounts are not subject to RMDs. If you forget to take your RMD from your retirement account, you will be assessed a penalty equal to 50% of the amount you should have withdrawn, in addition to your normal income taxes. That’s a penalty that can really sting, so it’s clearly in your best interest to take this money, something we help our clients with each year. After all, that’s what you saved it for. Please read our list of 9 Need-to-Know RMD Facts for more on the subject. This material is distributed for informational purposes only; and is not financial or investment advice. Speak to your financial adviser before taking specific action. The investment ideas and opinions contained herein should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed. Our statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged. All investments carry risk of loss and there is no guarantee that investment objectives will be achieved. Past performance is not an indication of future returns. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Personalized tax advice and tax return preparation is available through a separate, written engagement agreement with Adviser Investments Tax Solutions. We do not provide legal advice, nor sell insurance products. Always consult a licensed attorney, tax professional or licensed insurance professional regarding your specific legal or tax situation, or insurance needs. © 2021 Adviser Investments, LLC. All Rights Reserved.