The CFP Mailbag: Roth Conversions, RMDs, and Tax Loss HarvestingSubmitted by Reby Advisors | Certified Financial Planners | Danbury, CT on October 15th, 2020
From the Fall 2020 Newsletter, October 15, 2020
Q: There have been some changes this year to Required Minimum Distributions (RMDs), can you explain what that means to me?
A: The CARES Act suspended RMDs for 2020 – which means you don’t have to take out the minimum required amount this year. This is important because your money can continue to work for you, and you can potentially reduce your taxable income.
Q: What is a Roth conversion and how could it benefit me?
A: Using this strategy, investors move money from a pre-tax retirement account, pay the taxes on that amount in the current year, and then move those funds into a Roth IRA. People often take advantage of Roth conversions in low tax years, which can happen in a down market, or if their tax rate is lower than it will be when they take withdrawals in retirement.
Q: When you talk about tax-loss harvesting, what does that mean for me and my portfolio?
A: We use this strategy to sell low-performing investments, or those that are now below what you paid for them, and use the loss(es) to offset capital gains. This strategy can lower, or in some cases eliminate, your tax bill. The positions that we sell to capture these losses are then replaced by similar investments that will keep the portfolio’s allocation in line with your strategy.
Note: It is important to check with your advisor to determine what is the best approach with any of these strategies for your specific situation.
To read the Fall 2020 Edition of the Reby Advisors Newsletter, simply click below: