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By Michael Christodoulou

Michael Christodoulou

It’s been a bumpy year for the financial markets — which means that some of your investments may have underperformed or lost value. Can you use these losses to your advantage?

It’s possible. If you have some investments that have lost value, you could sell them to offset taxable capital gains from other investments. If your losses exceed gains for the year, you could use the remaining losses to offset up to $3,000 of ordinary income. And any amount over $3,000 can be carried forward to offset gains in future years. 

This “tax-loss harvesting” can be advantageous if you plan to sell investments that you’ve held in taxable accounts for years and that have grown significantly in value. And you might receive some gains even if you take no action yourself. For example, when you own mutual funds, the fund manager can decide to sell stocks or other investments within the fund’s portfolio and then pay you a portion of the proceeds. These payments, known as capital gains distributions, are taxable to you whether you take them as cash or reinvest them back into the fund. 

Still, despite the possible tax benefits of selling investments whose price has fallen, you need to consider carefully whether such a move is in your best interest. If an investment has a clear place in your holdings, and it offers good business fundamentals and favorable prospects, you might not want to sell it just because its value has dropped. 

On the other hand, if the investments you’re thinking of selling are quite similar to others you own, it might make sense to sell, take the tax loss and then use the proceeds of the sale to purchase new investments that can help fill any gaps in your portfolio. 

If you do sell an investment and reinvest the funds, you’ll want to be sure your new investment is different in nature from the one you sold. Otherwise, you could risk triggering the “wash sale” rule, which states that if you sell an investment at a loss and buy the same or a “substantially identical” investment within 30 days before or after the sale, the loss is generally disallowed for income tax purposes.

Here’s one more point to keep in mind about tax-loss harvesting: You’ll need to take into account just how long you’ve held the investments you’re considering selling. That’s because long-term losses are first applied against long-term gains, while short-term losses are first applied against short-term gains. (Long-term is defined as more than a year; short-term is one year or less.) 

If you have excess losses in one category, you can then apply them to gains of either type. Long-term capital gains are taxed at 0%, 15% or 20%, depending on your income, while short-term gains are taxed at your ordinary income tax rate. So, from a tax perspective, taking short-term losses could provide greater benefits if your tax rate is higher than the highest capital gains rate.

You’ll want to contact your tax advisor to determine whether tax-loss harvesting is appropriate for your situation — and you’ll need to do it soon because the deadline is Dec. 31. But whether you pursue this technique this year or not, you may want to keep it in mind for the future — because you’ll always have investment tax issues to consider.  

Michael Christodoulou, ChFC®, AAMS®, CRPC®, CRPS® is a Financial Advisor for Edward Jones in Stony Brook. Member SIPC.

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By Nancy Burner, Esq.

Nancy Burner, Esq.

For the charitably inclined, there is always a question of how to be most efficiently leave money to charities in your estate plan. Charitable giving ranges from simple small monetary amounts to more complicated charitable trusts. No matter the option, there are potential income tax and estate tax implications to consider.

Leaving a specific bequest in your ill or Trust is one common type of charitable gift. You leave a set amount to a charity of your choosing at the time of your death. For those that want to cap the amount that given to charity, this is a good option. These specific bequests are paid out first, off the top of the estate. Thus, if you only have $100,000 in your estate and leave specific bequests totaling $100,000, there will not be any assets left to the residuary beneficiaries. Usually, the residuary portion of an estate is the largest. But not always and especially not if you do not correctly allocate your assets.

Residuary beneficiaries are those that receive a percentage or fractional distribution of the “rest, residue, and remainder” of your estate. Take the example above, if your total estate assets equal $300,000, then after the $100,000 charitable bequests, your residuary beneficiaries receive the remaining $200,000. A charity can also be one of your residuary beneficiaries, in which case the charity would receive a fractional share of your choosing. 

In certain circumstances, it is beneficial to include a “disclaimer to charity.” You would add a provision in your Will or Trust directing that any “disclaimed” amount of your estate goes to charity. This is done for estate tax planning purposes. If your estate is more than 105% over the New York State estate tax exemption amount ($6.11 million in 2022), you then “fall off the cliff.” This means that your estate will receive no exemption and the entire estate taxed from dollar one. However, if your Will or Trust has a disclaimer provision, any amount that a beneficiary rejects goes to the charities that you listed.  That gift to charity serves to reduce your taxable estate, moving it back under “the cliff” and saving a great deal in taxes. This is an especially useful tactic for those with estates that are on the cusp of the exemption amount.

Another method of charitable giving is gifting tax-deferred retirement assets. While you are still living, you can gift from your retirement account up to $100,000 per year as a qualified charitable distribution. Making the gift directly to the charity removes the required minimum distribution from your taxable income. There are some pitfalls to avoid.  Not all plans qualify for this type of distribution, not all charities are considered “qualified,” you cannot receive a benefit in exchange for the distribution (ex. a ticket to a charity concert), and you must gift the funds directly from the retirement account to the charity.

In addition to charitable gifting from a retirement account during your lifetime, you can list charities as  after-death beneficiaries of your accounts. If you have a mixture of individuals and charities as beneficiaries, you may want to leave the retirement assets to the charities. This saves your individual beneficiaries from paying income tax on distributions. Especially in light of the SECURE Act, which requires that most beneficiaries of retirement account withdraw all the funds within ten years. The income tax consequences for such beneficiaries may be steep if there is a large retirement account. 

While there are several charitable giving options, each person will need to navigate a solution that suits them best. An experienced estate planning attorney will take into account the size of the estate, potential tax liabilities, how much you want to leave to charity, and your other beneficiaries. With proper planning, you can ensure your gifts go as far as possible to benefit the charities that you hold dear.

Nancy Burner, Esq. is a Partner at Burner Prudenti Law, P.C. focusing her practice areas on Estate Planning and Trusts and Estates. Burner Prudenti Law, P.C. serves clients from New York City to the east end of Long Island with offices located in East Setauket, Westhampton Beach, Manhattan and East Hampton.

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By Leah S. Dunaief

Leah Dunaief

Let’s take a look at how the stock market is doing these days and what we should be doing with it. On the whole, this has been a good year for stocks. Through the end of October of this year, the total return for Standard & Poor’s 500 stock index is 10.7 percent. While recent high interest rates paid by banks, money markets and treasury bonds have sucked some money away from equities, we might be further encouraged to get out of the stock market. Every time the Federal Reserve has raised rates with the intention of cooling down inflation, savers with cash have benefitted. Even short term treasuries are currently offering north of five percent return.

Don’t do it, according to Jeff Sommer, who writes, “Strategies,” for the New York Times  Sunday Business. Here is why.

A new study gives further evidence that buying and holding is the surest way to profit on the stock market. Wei Dai and Audrey Dong of the asset management fund Dimensional Fund Advisors did the following research. They came up with 720 market-timing strategies, applied over different time periods and conducted on a variety of stock markets. Except in one anomalous instance, the “passive investing” strategy, meaning we buy-and-hold while minimizing costs to get as much market return as possible, is the best course to follow. We can do this through traditional mutual index funds or exchange-traded funds (ETFs that are like mutual funds but trade like stocks). Or we can make up our own mutual fund with a combination of diversified individual stocks. The idea is to just ride the ups and downs of the market. But in doing that, we have to accept losses some years for overall gains in the long run.

For example, in 1982, the Dow Jones Industrial Average, which simply put is where the price of a select 30 U.S. stocks are added together, hovered around 1000. Today, that number is 35,475. Over a period of 40 years, the Dow snapshot of the market increased 35 times. But that also means there were years when the Dow declined. If we needed to sell then, at a low point, in order to secure some cash, we might have had to take a substantial loss depending on when we had bought into the market.

“People are always trying to figure out ways of beating the market,” said Ms Dai, meaning selling high, then buying low. “But moving in and out of stocks isn’t a good way to do it,” she added. While we may be able to see a low, it is very difficult to foresee when to get back in at the beginning of a rise. And most of the big money is made during the early stages of a rise, when the market takes off and we are left to run after it.

Can individual stock picking be a winning strategy?  That is, at best, extremely rare. Those who remember him highly regarded Peter Lynch, who managed the Magellan Fund for Fidelity (1977-1990) and who seemed to sense potential winners consistently over the years. His fund became so successful, it would alone move the markets. 

“Most active fund managers can’t beat the market year after year,” according to NYT columnist, Sommers. And so his advice, along with the research from Dimensional’s latest study, tells us to just be average and float on the overall market through index funds.

Of course, if you want to add a little spice to your life, as I sometimes get the urge to do, you can do the following. You can follow the advice offered above for the bulk of your equity investments but keep a small percentage, just five to ten percent for stock picking. That way, if you succeed on ferreting out winners, you can beat the market a bit. You can bask in the shadow of Peter Lynch. But if you lose, the result isn’t too bad.

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By Michael Christodoulou

If your children are grown and your mortgage is paid off, do you still need to carry life insurance? 

It depends on your situation, but for many people, a cash-value life insurance policy, such as whole life or universal life, can be a valuable, tax-efficient source of retirement income. And by drawing on the cash value of your policy, you might be able to temporarily reduce the amount you take out from your retirement accounts, such as your IRA and 401(k). This ability could be especially important when the financial markets are down — you’d probably like to avoid liquidating your assets when their prices have dropped.  

Basically, you can use the cash in your policy in the following ways:

Withdrawals: You can typically withdraw part of the cash value of your life insurance without losing coverage. You generally won’t incur income taxes on these withdrawals, up to the amount you’ve put into the policy — that is, the premiums you’ve paid. Once your withdrawals exceed this amount, you would generally owe taxes. Also, keep in mind that any withdrawals will reduce your policy’s death benefit and the available cash surrender value.

Policy loans: Rather than taking a withdrawal from your policy, you could take out a loan. You won’t have to go through an approval process or income verification, and policy loans typically have lower interest rates than bank loans and don’t assess closing costs. Plus, because your insurer will be lending you the money and using the cash in your policy as collateral, your policy’s cash value can remain intact and still potentially grow. However, policy loans do carry some issues of which you should be aware. For one thing, while a loan usually isn’t taxable, you could end up owing taxes on any unpaid loan balance, including interest. And if this balance exceeds the policy’s cash value, it could cause your policy to lapse. Also, outstanding loans can reduce your death benefit. 

Cashing out: If you cash out, or “surrender,” your policy, you can receive the entire cash value, plus any accrued interest. You will have to subtract any money needed to pay policy loans, along with unpaid premiums and surrender fees, which can be significant. Also, any amount you receive over the policy’s cash basis — the total of premiums you’ve paid — will be taxed as regular income. 

1035 Exchange: Through what’s known as a Section 1035 Exchange, you can transfer your life insurance policy to an annuity, which can be structured to pay you a lifetime income stream. The exchange won’t be taxable but surrender charges may still apply.  

Given the potential tax implications of the above options, you may want to consult with your tax advisor before making any moves. Also, be sure you are comfortable with a reduced or eliminated death benefit. Specifically, you’ll want to be confident that your spouse or other family members don’t need the proceeds of your policy. This may require some discussions about your loved ones’ plans and needs. And don’t forget that life insurance can help your family pay for final expenses, such as funeral costs and unpaid medical bills.

Whether it’s providing you with needed retirement income or helping your family meet future needs, your cash value life insurance policy is a valuable asset so try to put it to the best use possible.  

Michael Christodoulou, ChFC®, AAMS®, CRPC®, CRPS® is a Financial Advisor for Edward Jones in Stony Brook. Member SIPC.

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By Michael Christodoulou

You may spend decades contributing to various retirement accounts. But for some accounts, such as a traditional IRA and 401(k), you must start withdrawing funds at a certain point. What should you know about this requirement?

To begin with, the rules governing these withdrawals — technically called required minimum distributions, or RMDs — have changed recently. For many years, individuals had to begin taking their RMDs (which are based on the account balance and the IRS’ life expectancy factor) when they turned 70½. 

The original SECURE Act of 2019 raised this age to 72, and SECURE 2.0, passed in 2022, raised it again, to 73. (If you turned 73 in 2023, and you were 72 in 2022 when the RMD limit was still 72, you should have taken your first RMD for 2022 by April 1 of this year. You will then need to take your 2023 RMD by Dec. 31. And going forward, you’ll also need to take your RMDs by the end of every year.) 

Not all retirement accounts are subject to RMDs. They aren’t required for a Roth IRA, and, starting in 2024, won’t be required for a Roth 401(k) or 403(b) plan. But if your account does call for RMDs, you do need to take them, because if you don’t, you could face tax penalties. Previously, this penalty was 50% of the amount you were supposed to have taken, but SECURE 2.0 reduced it to 25%.

When you take your RMDs, you need to be aware of a key issue: taxes. RMDs are taxed as ordinary income, and, as such, they could potentially bump you into a higher tax bracket and possibly even increase your Medicare premiums, which are determined by your modified adjusted gross income. 

Are there any ways you could possibly reduce an RMD-related tax hike? You might have some options. Here are two to consider:

• Convert tax-deferred accounts to Roth IRA. You could convert some, or maybe all, of your tax-deferred retirement accounts to a Roth IRA. By doing so, you could lower your RMDs in the future — while adding funds to an account you’re never required to touch. So, if you don’t really need all the money to live on, you could include the remainder of the Roth IRA in your estate plans, providing an initially tax-free inheritance to your loved ones. However, converting a tax-deferred account to a Roth IRA will generate taxes in the year of conversion, so you’d need the money available to pay this tax bill. 

• Donate RMDs to charity. In what’s known as a qualified charitable distribution, you can move up to $100,000 of your RMDs directly from a traditional IRA to a qualified charity, avoiding the taxes that might otherwise result if you took the RMDs yourself. After 2023, the $100,000 limit will be indexed to inflation.

Of course, before you start either a Roth IRA conversion or a qualified charitable distribution, you will need to consult with your tax advisor, as both these moves have issues you must consider and may not be appropriate for your situation.

But it’s always a good idea to know as much as you can about the various aspects of RMDs — they could play a big part in your retirement income strategy.  

Michael Christodoulou, ChFC®, AAMS®, CRPC®, CRPS® is a Financial Advisor for Edward Jones in Stony Brook. Member SIPC.

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Edward Jones Michael Sceiford ribbon cutting. Photo from PJCC
Edward Jones Michael Sceiford ribbon cutting. Photo from PJCC
Edward Jones Michael Sceiford ribbon cutting. Photo from PJCC
Edward Jones Michael Sceiford ribbon cutting. Photo from PJCC

The Greater Port Jefferson Chamber of Commerce (PJCC) hosted a ribbon cutting ceremony to celebrate the grand opening of the new offices for Edward Jones Financial Advisor Michael Sceiford on Sept. 26. The event was attended by members of the chamber, Port Jefferson Village Board, Port Jefferson Rotary Club, staff, family and friends.

Located at 640 Belle Terre Road, Building B, in Port Jefferson, the investment firm helps its customers prepare for retirement, save for education and be a tax-smart investor.

“We congratulate Michael on his new location and beautiful office suites and we wish him much success,” said PJCC’s Director of Operations Barbara Ransome. 

Pictured in photo, from left, chamber member Suzanne Velazquez; chamber president Stuart Vincent; Edward Jones Associate Financial Advisor Tracy Prush; Edward Jones Branch Office Administrator Pam Guido; Stephanie Sceiford with children Claire and Harvey; Michael Sceiford (with scissors); chamber members Nancy Bradley and Brett Davenport; Port Jefferson Deputy Mayor Rebecca Kassay; Bob Huttemeyer from the Port Jefferson Rotary; and chamber members Risa Kluger, Michelle Cruz, Saranto Calamas, Andrew Thomas (seated), Eric D. Cherches Esq. and Mary Joy Pipe.

Office hours are 8:30 a.m. to 5 p.m. Monday through Friday. For more information, call 631-928-2034.

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Michael Sceiford

Edward Jones Financial Advisor Michael Sceiford of Port Jefferson has been named to the 2023 Forbes Top Next-Gen Wealth Advisors Best-in-State ranking by Forbes/SHOOK® Research. The list is comprised of more than 1,460 financial advisors nationwide, all under age 40.  Sceiford ranked No. 9 in New York State. 

This ranking is given to the top financial advisors under 40 in their respective states based on criteria that include compliance records, assets under care and more. 

“This is an incredible honor, one I could never have achieved without the tremendous support from my branch team. And I am forever indebted to my clients for the trust they have put in me and the relationships we’ve built as we work toward the financial goals that help give them the freedom to live life on their terms,” Sceiford said. 

“This work inspires me because I know that, for years to come, I can make a meaningful difference in the lives of my clients and colleagues, and in my community,” he said. 

Michael Sceiford and branch office administrator Pam Guido can be reached at 631-928-2034. You may also visit the branch website at edwardjones.com/michael-sceiford.

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Labor leader Joseph James Ettor (1885-1948) speaks in Union Square during the Brooklyn barbers’ strike of 1913. Public domain photo
By Aramis Khosronejad

Amid Labor Day celebrations, Long Island is working through a labor shortage crisis, according to New York State Assemblywoman Jodi Giglio (R-Riverhead), a member of the Assembly’s Standing Committee on Labor.

Like much of New York state, Suffolk County is navigating through various labor challenges such as its relatively high unemployment rate, lingering effects of the COVID-19 pandemic, high cost of living and rising inflation. 

Labor shortages

According to the 2023 Long Island Economic Survey, “We are in the midst of one of the nation’s biggest labor crises on record, with significant labor shortages affecting all industries and geographies.” 

In an interview, Giglio expressed her concerns for Long Island’s labor, suggesting “a lot of businesses [are] putting up help wanted signs and looking for somebody to fill these positions.” 

This July, according to the New York State Department of Labor’s Jobs and Labor Force press release, the unemployment rate in New York state “held constant at 3.9%. The comparable rate for the U.S. was 3.5%.” 

When asked whether she would consider the current labor shortage a crisis, Giglio replied, “Absolutely, it is a crisis.”

Post-pandemic recovery

The Long Island workforce is still feeling the long-term impacts of the pandemic, according to Giglio. She said much of the financial hardships were brought on by malfeasance.

“I think there was a lot of money that was stolen from the state by unemployment, fraud, and people [who] were finding ways to live less expensively,” Giglio said. Additionally, “Businesses are really struggling to stay afloat.”

Cost of living

Attributing a cause to growing labor shortages, Giglio offered that fewer young people are staying put. 

“It seems as though the kids that are getting out of college are finding different states to live in and different states where they can get meaningful jobs,” she said. “The high cost of living in New York and the jobs that are available are not able to sustain life here in New York, especially on Long Island.”

Wages

While the high standard of living in New York may be one factor contributing to labor shortages on Long Island, stagnating wages present yet another barrier.

The founder of Long Island Temps, Robert Graber, explained the complications of wages and inflation. 

“Wages have gone up, but inflation is outpacing the wage increase,” he said. “That makes it harder to recruit and fill positions.”

Migrant labor

Since spring 2022, a wave of migrants have entered New York state, the majority arriving in New York City. When asked if this migrant surge could help resolve the labor shortages islandwide, Giglio expressed some doubts. 

“I’ve been talking to a lot of business owners and organizations that have been trying to help migrants that are coming into the city, and some even making their way out to Long Island,” the assemblywoman said. “Some of their biggest problems are that they don’t have any documents, identification from their countries, nor do they have a passport, and they don’t have a birth certificate.” 

Giglio added that this lack of information could undermine effective integration into the Long Island labor force. “It’s really putting a strain on the government and the workload,” she said.

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By Michael Christodoulou

You’ll find some big differences between traditional and speculative investments — and knowing these differences can matter a great deal when you’re trying to reach your financial goals.

To begin with, let’s look at the basic types of traditional and speculative investments. Traditional investments are those with which you’re probably already familiar: stocks, bonds, mutual funds, government securities, certificates of deposit (CDs) and so on. Speculative investments include cryptocurrencies, foreign currencies and precious metals such as gold, silver and copper.

Now, consider these three components of investing and how they differ between traditional and speculative investments:

The first issue to consider is risk. When you own stocks or stock-based mutual funds, the value of your investments will fluctuate. And bond prices will also move up and down, largely in response to changing interest rates. However, owning an array of stocks — small-company, large-company, international, etc. — can help reduce the impact of volatility on your stock portfolio. And owning a mix of short- and long-term bonds can help you defend yourself somewhat against interest-rate movements. 

When interest rates fall, you’ll still have your longer-term bonds, which generally — but not always – pay higher rates than short-term ones. And when interest rates rise, you can redeem your maturing short-term bonds at potentially higher rates.

With speculative investments, though, price movements can be extreme as well as rapid. During their short history, cryptocurrencies in particular have shown astonishingly fast moves up and down, resulting in huge gains followed by equally huge, or bigger, losses. The risk factor for crypto is exacerbated by its being largely unregulated, unlike with stocks and bonds, whose transactions are overseen by well-established regulatory agencies. There just isn’t much that investors can do to modulate the risk presented by crypto and some other speculative investments.

A second key difference between traditional and speculative investments is the time horizon involved. When you invest in stocks and other traditional investments, you ideally should be in it for the long term — it’s not a “get rich quick” strategy. But those who purchase speculative investments want, and expect, quick and sizable returns, despite the considerable risk involved.

A third difference between the two types of investments is the activity required by investors. When you’re a long-term investor in traditional investments, you may not have to do all that much once you’ve built a portfolio that’s appropriate for your risk tolerance, goals and time horizon. 

After that point, it’s mostly just a matter of monitoring your portfolio and making occasional moves — you’re not constantly buying and selling, or at least you shouldn’t be. But when you speculate in crypto or other instruments, you are constantly watching prices move — and then making your own moves in response. It’s an activity that requires considerable attention and effort.

One final thought: Not all speculative instruments are necessarily bad investments. Precious metals, for instance, are found in some traditional mutual funds, sometimes in the form of shares of mining companies. And even crypto may become more of a stable vehicle once additional regulation comes into play. 

But if you’re investing for long-term goals, such as a comfortable retirement — rather than speculating for thrills and quick gains, which may disappear just as quickly — you may want to give careful thought to the types of investments you pursue.

Michael Christodoulou, ChFC®, AAMS®, CRPC®, CRPS® is a Financial Advisor for Edward Jones in Stony Brook. Member SIPC.

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