Opportunity #3…Tax planning

Taxes are the topic of today; when we think about market fluctuations like we’re experiencing now, taxes become an important issue. When markets are up and your IRA, your 401K, and all your investments are growing, it’s easy to look at your pile of assets and worry that the IRS will take a big bite. But when the market is crashing and there are other things to worry about, it’s easy to forget about how taxes will factor into your budget. Now is the perfect time to focus on saving your hard-earned money and not letting taxes take chunks from your investments.

The first way to save on your taxes has nothing to do with your IRA or 401K but is equally important. This is for people who have invested in after-tax accounts, maybe through a real-estate sale, an inheritance, or saved up money they’ve decided to invest. When you have investment accounts, some financial advisors will tell you to “buy and hold.” Don’t listen to them! An advisor who knows what they’re doing will know that you can save a huge amount of money through tax harvesting.

Tax harvesting is when you deliberately sell investments at a loss to avoid the taxes that you would incur by selling at a gain. As an example, let’s say you have Shell Oil in your portfolio, and their stock is down. A good advisor will sell Shell Oil while it’s down and take a little bit of a loss on it. Then they’ll turn around and buy stock in Exxon Mobil, which is in the same industry and has prices moving in the same direction overall. Your total capital gains for the year, which will be taxed, are lowered by a little bit; the loss from selling your stock at a low point is less than what you would have lost in taxes if you had been taxed on your capital gains before the sale.

We think advisors who don’t know about or don’t take the initiative to do tax harvesting aren’t worth your time. Some investors will do some tax harvesting in December. But other investors will follow the studies and the industry publications, and they’ll know that the best way to do tax harvesting is on a scheduled and consistent basis, every four to six weeks, throughout the entire year. Tax harvesting is too important for you to not be doing.

The other big opportunity for savings is your IRA or 401K. When the market is down or your IRA and 401K are down in value, it’s a perfect time to do a Roth conversion. It’s very simple to move your taxable IRA or 401K to a tax-free Roth IRA. Of course, you will get taxed on the money that you move; that’s inescapable. But that’s why it’s important to make that move while the market is down. You’ll be paying taxes on a lower amount than if you tried to move the money when your account was bigger. In this case, the falling market works to your advantage.

At Centennial Advisors we want to fight for you. We don’t settle for average, because we know you’ve worked hard to get where you are, and you deserve the best protection for your investments. Give us a call at 512-886-5850 if you want to have a conversation about anything we’ve touched on today; there’s no obligation, just professionals who care about you and are happy to help.












Past performance is not indicative of future results. The material above has been provided for informational purposes only and is not intended as legal or investment advice or a recommendation of any particular security or strategy. The investment strategy and themes discussed herein may be unsuitable for investors depending on their specific investment objectives and financial situation. Information obtained from third-party sources is believed to be reliable though its accuracy is not guaranteed, and Centennial Advisors, LLC makes no representation or warranty as to the accuracy or completeness of the information, which should not be used as the basis of any investment decision. Information contained on third party websites that Centennial Advisors, LLC may link to are not reviewed in their entirety for accuracy and Centennial Advisors, LLC assumes no liability for the information contained on these websites. Opinions expressed in this commentary reflect subjective judgments of the author based on conditions at the time of writing and are subject to change without notice. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission from Centennial Advisors, LLC. For more information about Centennial Advisors, LLC, including our Form ADV brochures, please visit https://adviserinfo.sec.govor contact us at 512.265.5000.

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