Asset Location, as Well as Allocation, Matters for Retirees
Higher Taxes Ahead?
|Long-Term Capital Gains||15%||20%|
Another factor that plays into where you keep your assets is future tax rates, which are very much a moving target.
* Projected rates
Should Congress fail to take action, personal-income tax and long-term capital gains rates will increase across the board on Jan. 1, 2013. The 15-percent rate for qualified dividend income will disappear, says Larry Karmel, a partner at New York-based accounting firm Metis Group. As part of ObamaCare, investment income will also get hit with a 2.9 percent surcharge starting in 2013.
For investors who expect to see their marginal rates rise and have cash to pay the upfront tax bill, advisors suggest transferring tax-deferred retirement account assets into a Roth IRAbefore rates rise. Roth account holders pay taxes today on their contributions, but owe no future taxes on earnings or qualified distributions.
“As for future, probable tax structure, it's really just a guessing game,’’ says Rick Ashburn, who runs Lafayette, Calif., advisory firm Creekside Partners. “On balance, I would advise higher-income clients to plan for higher marginal rates."