How the tax overhaul expands 529 benefits

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

529 plans are hotter than tax overhaul
The newly passed tax law has capped deductions for state and local taxes and made tax-advantaged 529 college savings plans more attractive for investors, according to this article from the Wall Street Journal. The law also allows 529 plan holders to make tax-free withdrawals for elementary and secondary school expenses. “The recent tax changes expanded the benefits for 529 plans, which are already highly popular with middle- and upper-income families,” an analyst says.

Optimal strategies when rebalancing client portfolios
Clients are advised to account for taxes when rebalancing their portfolio, according to this article from USA Today. They are advised to mind the wash rule when selling losses in their taxable accounts. Another tax-efficient strategy is to park tax-exempt municipal bonds in taxable accounts and tax-sensitive funds, such as high-yield funds, in IRAs or tax-advantaged accounts.

Ideas to trim your clients' income tax bills
Under the new tax law, seniors who are 70 1/2 and older have the option of donating some funds directly from their tax-deferred accounts to a charity, according to this Washington Post article. This strategy allows these clients to count the donation towards their required minimum distributions but exclude the amount from their taxable income, avoiding the tax bill in the process. Another option is to donate through a donor-advised fund with a plan to time and determine the amount of the donation is important to optimize the benefit.

3 worst states for taxes on retirees
Minnesota, Connecticut and Kansas rank at the top of the country’s least tax-friendly states for retirees, according to this Kiplinger article. These three impose the heftiest taxes on Social Security benefits and retirement income. Retirees who live in these states also face taxes on estates and inheritances, and levy high property taxes.

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IRA or 401(k): Which is better in 2018?
Clients may be better off maxing out their 401(k) contributions this year to qualify for their employer's match, according to this Motley Fool article. They may also opt to direct money to an IRA if they have reached the maximum 401(k) contribution limit, or if their 401(k) plan offers low-quality investment options. Unlike in 401(k) plans where contributions are counted for the year they are made, clients can still contribute to an IRA until April 17 and have the contributions deducted from their 2017 taxable income.

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