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Three Smart Money Moves to Make in January

It’s time for the Roaring Twenties!  That’s right – 2020 is here, and with the new year, it’s time to think about planning.  Here are three money moves we believe you need to make here in January.

First, try to assess the damage from your holiday spending. We know, there are some people out there who either have more money than they could ever spend, and others who wisely stayed within their yearly budget for gift-giving, but let’s be honest: you aren’t in either one of those camps. So while it’s on your mind, go through your credit card receipts, see what you spent, and if you blew up your budget in December, you’ve got plenty of time right now to make a course correction.

Second, you should think about where you’ll store your tax documents.  Some of your forms won’t arrive until the end of the month or early February, but once you have them, you’ll need to make sure they’re all together and easily accessible. You don’t want to forget about a W-2 or 1099 form when you go to file your taxes, so it’s best to keep them all in one place, along with receipts for any potentially deductible expenses and charitable donations.

Third, if you have a required minimum distribution in 2020, consider taking  that distribution this month. In January.  Do this even if you’re planning on taking out more than the minimum this year. Why? Well, because the amount you’re required to take out is based on the ending balance from 2019, which is now over, so there’s no real advantage in waiting until later. By moving it now from your tax-deferred account into your personal account, if it grows in value during the year, no taxes have to be paid yet on that potential growth. And if your heirs inherit it this year, they’ll get a step-up in basis and they won’t have to pay taxes on it either, if they sell it immediately.

But if you leave it in the IRA all year and if it grew there instead, that potential growth will become part of the balance for NEXT year’s RMD, making the RMD higher. And the tax treatment will be ordinary income, instead of the lower capital gains rate. And if it’s passed on to your heirs this year, it will be taxed to them at ordinary income rates, instead of being tax free.

On the flip side, if the investment instead goes down in value, if it’s in your personal account, you can sell that security and use the capital loss against other income – even against ordinary income (up to $3,000). You can’t do that if the money stays in the IRA.

Oh – and one more reason to take your RMD in January – so you don’t forget about it! Penalties for missing it are 50 percent of the shortfall, something you really want to avoid paying. Taking your RMD early in the year will eliminate that risk.

So there you have it!  If you need further help with tax planning, be sure to give us a call or contact us through the website. We do this stuff every single day here at Lucia Capital Group, and of course, we’re always here to help YOU.


Important Information:

The information provided should not be considered specific tax, legal, or investment advice and is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

This material was gathered from sources believed to be reliable, however, its accuracy cannot be guaranteed. All investments are subject to risk including the loss of principal.
No client or prospective client should assume that the presentation (or any component thereof) serves as the receipt of, or a substitute for, personalized advice from Lucia Capital Group or from any other investment professional.

IRA withdrawals will be taxed at ordinary income rates. Withdrawals prior to age 59½ may also be subject to a 10% penalty tax.

Rick Plum is a registered representative of, and offer securities through, Lucia Securities, LLC, a registered broker/dealer, member FINRA/SIPC. Advisory services offered through Lucia Capital Group, a registered investment advisor, and an affiliate of Lucia Securities, LLC. Registration with the SEC does not imply a certain level of skill or training. John Dean is an associated person of Lucia Securities, LLC.

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