Top Things to Do With Your Assets and Portfolio Before Your Retirement
Are you approaching retirement? Congratulations. You have worked hard and saved up for this moment. You even go further by planning to reduce your Medicare cost. But before you kick back and relax, ensure your assets and portfolio are in top shape.
Reviewing your investments, considering converting to a Roth account, taking required minimum distributions, and harvesting tax losses can help ensure that you’re prepared for the next chapter of your life. But how do you ensure you’re doing them right? Read on and go deeper into these essential steps so you can confidently retire.
Review and Rebalance Your Portfolio
As you near retirement, your assets and portfolio might need a little bit of adjustment here and there. And that’s why you need to review and rebalance those two regularly. Your investments may have shifted in value or changed their risk level over time, so see if they truly align with your goals and needs. But how? First off, start by evaluating your current asset allocation. Next, consider the fees associated with each investment. Look for lower-cost options that offer comparable performance or switch to a robo-advisor service if necessary.
Consider Converting to a Roth
When planning for retirement, it’s important to consider converting your traditional IRA or 401(k) to a Roth IRA. Yes, it’s true that it’s not everyone’s cup of tea, but it can definitely provide significant tax benefits in the long run. One advantage of a Roth conversion is that you pay taxes on the converted amount upfront, and then all future earnings grow tax-free. This means that when you reach retirement age and start withdrawing funds, you won’t owe any additional taxes. Aside from that, you’ll get no required minimum distributions (RMDs) with a Roth IRA.
Take Your Required Minimum Distribution (RMD)
Speaking of RMDs, as you approach retirement age, you need to master the concept of this distribution. In short, it’s the minimum you are required to withdraw from your traditional IRA or employer-sponsored retirement plan each year after reaching age 72. Failure to take RMDs can result in hefty penalties. The amount of your RMD is based on your life expectancy and account balance. Taking out too little could result in missed opportunities for growth, while taking out too much could leave you short on funds later in life. That’s why you try to factor in taxes when planning for RMDs, as they are taxed as ordinary income.
Harvest the Tax-Losses
Did you know that instead of seeing your loss go continuously, you can harvest them for such a good profit? That’s why tax-loss harvesting is not a bad idea. By involving in selling investments that have lost value to offset gains and reduce your overall taxable income, you can do just that. Tax-loss harvesting can be particularly effective if you have a high-income year or are expecting a large capital gain. By selling losing investments, you can potentially save money on taxes while also rebalancing your portfolio. So let’s wrap up. Retirement planning is a crucial aspect of everyone’s life. By taking these steps mentioned before retirement comes to you, you’ll be thousands of steps closer to living comfortably in your golden years.