Mutual Funds/tax consequences for elderly selling mutual funds
QUESTION: hi John - I'm (newly) responsible for managing my retired elderly single mother's (CA) finances. I'm uncomfortable with the amount of her investments that are in stock mutual funds. I'm guessing that there have been significant gains because I think these are old investments. My concern is that there is enough money to cover her living expenses and I don't think she has any reason to be invested in stocks at this point in her life, 91 years old.
I would like to get a handle on how to decide what to sell and how much to sell so that I can optimize the gains and avoid paying taxes as much as possible. My questions are:
1. Do I need to see a professional, and if so, who should I choose, a CPA or ??
2. What can I do to educate myself? Even if I go for a consultation, I would like to have some sort of foundation/background in the subject.
ANSWER: Hi Rob. Thanks for reaching out. I am glad that you recognize there are several moving pieces here and that discussing this in more detail with a professional makes sense. In my opinion, you should speak with a CFP professional (Certifed Financial Planner) and finding one that will meet with you on an hourly basis will more than likely make the most sense. A great place to start this search is the National Assoc of Financial Planner (NAFPA) as well as the Garret Finanical Network. I would check out both of these resources for local professionals in your area. In regards to educating yourself, there are many resources out there. In what specific ways would you like to spend time educating yourself?
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QUESTION: hi John - Regarding your question about educating myself, I feel that I don't have any kind of handle on what you described as "all the moving parts". So I don't even know enough about the things that I don't know about, and I'm sure those things exist.
I think a CFP makes sense. I was looking for an easier answer, but I fear that it doesn't exist!
Hi Rob. I understnad the condundrum which is why I was asking for some clarification. Given the uncertainty, if you choose to talk to a professional, I would focus on understanding the rate of return that NEEDS to be earned on the investments to meet your mothers financial goals and then match this up with the minimum level of risk that needs to be taken to achieve this return. Then, if you decide to invest in a way that is expected to provide a higher return than necessary, then you will at least be taking on thei additional risk purposefully and with a meaning. In regards to the taxes, I think you need to view this one of two different ways; if you pay taxes to reduce risk, then this is the "cost" of this change. However, if you sell holdings and incur taxes with the expectations of keeping the risk level the same and simply increasing diversification, then you will want to understand the "break even" in doing so (i.e. if you pay $$ in taxes, how long should you expect it to take to recoup these taxes paid via extra performance). A great way to educate yourself on investments and the importance of diversification is www.vanguard.com. Go to the personal investors section and click on the education tab. I hope this helps!