Have you ever tried tax loss harvesting? With the markets down across the board, now is a good time to learn to utilize this tax-saving tool. I found a great article about this from Barrons.com that I share in the retirement headline segment. The article explores the traps that can befall someone trying to use this strategy.

Afterward, in the listener questions segment, we’ll dive into the question: do I need life insurance in retirement? You may be surprised to learn that there is no one size fits all answer to this question.

If you have been a long-time listener of Retirement Starts Today, you may remember that I use our annual listener survey to improve the show each year. Now is the time to make your voice heard. Please take a few minutes to fill out this mostly multiple-choice survey so that we can ensure that we are bringing you the most relevant content to help guide you on your retirement journey.

Please check out the listener survey so that we can ensure that we are bringing you the most relevant content to help guide you on your retirement journey. Click To Tweet

Outline of This Episode

  • [2:17] Tax loss harvesting can be more sizzle than steak
  • [3:44] 7 Tips for tax loss harvesting
  • [15:29] How much life insurance does Jim need in retirement?

Is tax loss harvesting more sizzle than steak?

You may be wondering why I’m highlighting a headline about tax-loss harvesting after recently professing it to be more sizzle than steak. I haven’t changed my opinion on this. Generally speaking, using tax loss harvesting means that, at best, you are resetting your basis lower only to pay a higher tax bill later to offset your tax savings today, and at worst it means you’ll be paying more taxes later.

Even without my glowing review, with the current state of the markets, this is a topic that keeps popping up, so I thought it would be best to find an article that analyzes the pitfalls and mistakes people make when using a tax loss harvesting strategy.

Tax loss harvesting is not to be used to offset income earned. Click To Tweet

How to use tax loss harvesting

It is important to remember that tax loss harvesting must be used when you have realized a gain elsewhere either like a company stock or an inheritance. Tax loss harvesting is not to be used to offset income earned. The good news is that a loss can be deployed at any time of year: you don’t have to wait until the end of the year to realize the loss. A large market selloff is an ideal time to utilize tax loss harvesting. However, there are several things that can thwart your game plan or make it more effective.

7 tips for tax loss harvesting

  1. Understand the limits – It may not be possible to reap the advantages of losses within a single tax year. Listen in to hear why.
  2. Beware of the wash-sale rule – This rule prohibits selling an investment for a loss and purchasing the same or closely identical investment within 30 days prior to or after the sale.
  3. Think outside the box – Learn how you can avoid the wash-sale issue by selling holdings that have rising rates.
  4. Make tax loss harvesting an ongoing priority – Market conditions have created an optimal time to find opportunities to use tax loss harvesting. You don’t have to wait until the end of the year to take advantage of this strategy.
  5. Have an interim strategy – During the wash sale interim, you can take advantage of buying opportunities and find new areas to expand your investments.
  6. Learn more – Learn the particulars of tax loss harvesting and discuss them with your financial advisor or tax professional.
  7. Make sure the sale makes sense – “Sometimes the best move is not to make any move. It’s great if you save on taxes, but if your investments are in a worse place because of it, at the end of the day, you’re in a worse position.”
A loss can be deployed at any time of year: you don’t have to wait until the end of the year to realize it. Click To Tweet

Listen in to learn the pitfalls to avoid with tax loss harvesting. Don’t forget to fill out the listener survey to share your opinions on the direction of the show.

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