December 2019 Newsletter to Clients

Enjoy this month’s edition that features an announcement by TD Ameritrade, a reminder of year-end distributions and 2020 contribution limits.

Charles Schwab to Acquire TD Ameritrade

As you may have heard, Charles Schwab and TD Ameritrade have reached an agreement for Schwab to acquire TD Ameritrade. The transaction is subject to customary closing conditions and is expected to close in the second half of 2020. Until then, there should be no impact on how we work with TD Ameritrade. The combined company will be called Schwab.

End of Year Fund Distributions

Mutual funds allocate capital gains and dividend income generated by the fund either periodically during the year or in December. For instance, if a fund buys a stock for $75 and later sells it for $100, the fund realizes a capital gain. That capital gain, minus the fund’s expenses, comes to owners of the fund in the form of a distribution. When dividends and distributions are disbursed, the fund’s share price declines by the per share amount of the distribution. Mutual funds are required by law to make regular capital gains distributions to their shareholders.

If a mutual fund is held in a taxable account the capital gains distributions are taxed at the capital gains rates of 0%, 15% or 20%, depending on the taxpayer’s ordinary income tax rate. Later in December, when all the mutual fund distributions have been made, we will look for tax loss harvesting opportunities. This is a fancy way of saying you can sell any investment in a taxable account that is worth less now than what you paid for it, and use that loss to offset capital gains distributions. And, as a total, if your losses are more than your gains, you can use up to $3,000 of excess loss each year to reduce other income.

2020 Contribution Limits to Retirement Accounts

The IRS recently announced new 2020 contribution limits. Remember, every dollar contributed pre-tax to a retirement account will reduce your taxable income by that same dollar.

• The maximum contributions for 401(k)s, 403(b)s and 457(b)s are as follows:
  • $19,500 – this is your contribution and does not include your employer’s;
  • $6,500 catch-up contributions to those plans for those 50 and over;
  • $13,500 for SIMPLE IRAs;
  • $6,000 tax-deductible IRA contributions – this is income dependent so check with us before contributing.

Thank you for your continuing confidence.