As conventional LTC policies grow costlier, alternatives have emerged.

The price of long term care insurance is really going up. If you are a baby boomer and you have kept your eye on it for a few years, chances are you have noticed much costlier premiums for LTC coverage today compared to several years ago. For example, in 2015 the American Association for Long-Term Care Insurance found that married 60-year-olds would pay $2,170 annually to get a total of $328,000 of coverage.1

As CNBC notes, about three-quarters of the insurers that sold LTC policies ten years ago have stopped doing so. Demand for LTC coverage will only grow as more baby boomers retire – and in light of that, insurance providers have introduced new options for those who want to LTC coverage.1

Hybrid LTC products have emerged. Some insurers are structuring “cash rich” whole life insurance policies so you can tap part of the death benefit while living to pay for long term care. You can use up to $330 a day of the death benefit under such policies, with no reduction to the cash value. Other insurance products are being marketed featuring similar potential benefits.2

This option often costs a few hundred dollars more per year – not bad given that level annual premiums on a whole life policy with a half-million or million-dollar payout often come to several thousand dollars. The policyholder becomes eligible for the LTC coverage when he or she is judged to require assistance with two or more of six daily living activities (dressing, bathing, eating, etc.) or is diagnosed with Alzheimer’s disease or some other kind of cognitive deficiency.2

This way, you can get what you want from one insurance policy rather than having to pay for two. Contrast that with a situation in which you buy a discrete LTC policy but die without requiring any long term care, with the premiums on that policy paid for nothing.

The basics of securing LTC coverage applies to these policies. As with a standard LTC policy, the earlier you start paying premiums for one of these hybrid insurance products, the lower the premiums will likely be. You must pass medical underwriting to qualify for coverage. The encouraging news here is that some people who are not healthy enough to qualify for a standalone LTC insurance policy may qualify for a hybrid policy.3

These hybrid LTC products usually require lump sum funding. An initial premium payment of $50,000 is common. Sometimes installment payments can be arranged in smaller lump sums over the course of a few years or a decade. For a high net worth individual or couple, this is no major hurdle, especially since appreciated assets from other life insurance products can be transferred into a hybrid product through a 1035 exchange.1,3

Are these hybrid policies just mediocre compromises? They have detractors as well as fans, and the detractors cite the fact that a standalone LTC policy generally offers greater LTC coverage per premium dollar paid than a hybrid policy. They also cite their two sets of fees, per their two forms of insurance coverage. While it is possible to deduct the cost of premiums paid on a conventional LTC policy, hybrid policies allow no such opportunity.3

Paying a lump sum premium at the inauguration of the policy has both an upside and a downside. You will not contend with potential premium increases over time, as owners of stock LTC policies often do; on the other hand, the return on the insurance product may be locked into today’s (minimal) interest rates.

Another reality is that many middle-class seniors have little or no need to go out and buy a life insurance policy. Their heirs will not face inheritance taxes, because their estates aren’t large enough to exceed the federal estate tax exemption. Moreover, their children may be adults and financially stable themselves; a large death benefit for these heirs is nice, but the opportunity cost of paying the life insurance premiums may be significant.4

Cash value life insurance can be a crucial element in estate planning for those with large or complex estates, however – and if some of its death benefit can be directed toward long term care for the policyholder, it may prove even more useful than commonly assumed.

Values can help determine goals & a clear purpose.

Some millionaires are reluctant to talk to their kids about family wealth. Perhaps they are afraid what their heirs may do with it.

In a 2015 CNBC Millionaire Survey, 44% of families having at least $1 million in investable assets said that they had not yet told their children about their future inheritance. Another 27% said they had refrained from mentioning it until their children were 30 or older.1

It can be awkward to talk about such matters, but these parents likely postponed discussing this topic for another reason: they wanted their kids to grow up with a strong work ethic instead of a “wealth ethic.”

If a child comes from money and grows up knowing he or she can expect a sizable inheritance, that child may look at family wealth like water from a free-flowing spigot with no drought in sight. It may be relied upon if nothing works out; it may be tapped to further whims born of boredom. The perception that family wealth is a fallback rather than a responsibility can contribute to the erosion of family assets. Factor in a parental reluctance to say “no” often enough, throw in an addiction or a penchant for racking up debt, and the stage is set for wealth to dissipate.

How might a family plan to prevent this? It starts with values. From those values, goals, and purpose may be defined.

Create a family mission statement. To truly share in the commitment to sustaining family wealth, you and your heirs can create a family mission statement, preferably with the input or guidance of a financial services professional or estate planning attorney. Introducing the idea of a mission statement to the next generation may seem pretentious, but it is actually a good way to encourage heirs to think about the value of the wealth their family has amassed, and their role in its destiny.

This mission statement can be as brief or as extensive as you wish. It should articulate certain shared viewpoints. What values matter most to your family? What is the purpose of your family’s wealth? How do you and your heirs envision the next decade or the next generation of the family business? What would you and your heirs like to accomplish, either together or individually? How do you want to be remembered? These questions (and others) may seem philosophical rather than financial, but they can actually drive the decisions made to sustain and enhance family wealth.

Feel no shame in exerting some control. A significant percentage of families seek to define a purpose for transferred wealth. In CNBC’s survey, 32% of parents aged 55 or younger said they were going to specify what their heirs could use their inheritances for, and that was also true for 15% of parents aged 55-69 and 9% of parents aged 70 or older.1

You may want to distribute inherited wealth in phases. A trust provides a great mechanism to do so; a certain percentage of trust principal can be conveyed at age X and then the rest of it Y years later, as carefully stated in the trust language.

This is a way to avoid a classic mistake: giving your heirs too much money at once. In fact, a 2015 Merrill Lynch Private Banking & Investment Group report notes that 46% of high net worth parents share that very concern.2

Just how much is too much? Answers vary per family, of course. In the aforementioned Merrill Lynch survey, 46% of families said that they wanted to avoid handing down the kind of money that would dissuade their heirs from realizing their full potential in their lives and careers.2

By involving your kids in the discussion of where the family wealth will go when you are gone, you encourage their intellectual and emotional investment in its future. Pair values, defined goals, and clear purpose with financial literacy and input from a financial or legal professional, and you will take a confident step toward making family wealth last longer.

U.S. equities face their biggest test of 2015.

June definitely ended with some drama. When Greek government officials told Reuters Monday that the nation could not make its €1.5 billion loan repayment to the International Monetary Fund on June 30, the Dow plunged 350.33, the S&P 500 43.85 and the Nasdaq 122.04 while the CBOE VIX rose 36%. The Dow closed under its 200-day moving average. The big three stabilized Tuesday while investors braced for more turbulence.^1,2

Greece’s last-minute requests were turned down Tuesday. Greek Prime Minister Alexis Tsipras asked eurozone finance ministers for an extension, a haircut on the nation’s debt, or a third bailout. Each request was denied, and that meant the official end of the Greek bailout coordinated by the European Financial Stability Fund. The Greek government will present a proposal for a new, third bailout to the same finance ministers (a.k.a. the Eurogroup) on Wednesday. Approval of any such bailout package will only be considered in July.³

The next hurdle is Greece’s July 5 nationwide referendum. Tsipras and his far-left Syriza party have slated a national vote for next Sunday, in which Greeks can express whether they are for or against the current IMF/EU bailout proposal. Practically speaking, Syriza is polling the Greek people to see if they want to quit the euro.⁴

As NPR notes, while Tsipras has argued that the austerity measures imposed on the country amount to a humiliation of Greece, most Greeks want their nation to stay in the EU. Wolfgang Schaueble, Germany’s finance minister, characterized Tsipras’s stand this way: “When you’re driving down the Autobahn and everyone else is driving the opposite direction, you may think you’re right, but you’re wrong.”⁴

Still, Greece could remain in the EU even if it defaults. Though Schaueble has been a severe critic of the Greek government, Bloomberg notes that he has indicated the European Central Bank will do what it must to keep Greece in the eurozone, even if its people vote to leave it. As he told ARD Television earlier this week, “Greece is on a difficult path. But we will do everything to keep Europe stable.”⁵

Germany is Greece’s largest creditor, and German Chancellor Angela Merkel did not soften the nation’s stance in the matter, saying bluntly on June 30: “This evening at exactly midnight Central European Time the program expires. And I am not aware of any real indications of anything else.”⁶

Would a “Grexit” damage the solidarity of the EU? Spanish Prime Minister Mariano Rajoy worried about that this week, expressing that if Greece leaves the eurozone, it would send “a negative message that euro membership is reversible.”⁶

If Greece does leave the euro and return to the drachma, it would undeniably make things worse for a nation with 26% unemployment that just experienced a run on its banks and a credit downgrade to CCC- (junk status) by Standard & Poor’s.^4,7

On our shores, the Dow gained 23.16, the Nasdaq 28.40 and the S&P 500 5.48 Tuesday, offering a little hope that U.S. equity markets might possibly be able to decouple from this crisis.⁸

Working a little (or a lot) after 60 may become the norm.

Do we really want to retire at 65? Not according to the latest annual retirement survey from the Transamerica Center for Retirement Studies which gauges the outlook of American workers. It found that 51% of us plan to work part-time once retired. Moreover, 64% of workers 60 and older wanted to work at least a little after 65 and 18% had no intention of retiring.¹

Are financial needs shaping these responses? Not entirely. While 61% of all those polled in the Transamerica survey cited income and employer-sponsored health benefits as major reasons to stay employed in the “third act” of life, 34% of respondents said they wanted to keep working because they enjoy their occupation or like the social and mental engagement of the workplace.¹

It seems “retirement” and “work” are no longer mutually exclusive. Not all of us have sufficiently large retirement nest eggs, so we strive to stay employed – to let our savings compound a little more, and to leave us with fewer years of retirement to fund.

We want to keep working into our mid-sixties because of two other realities as well. If you are a baby boomer and you retire before age 66 (or 67, in the case of those born 1960 and later), your monthly Social Security benefits will be smaller than if you had worked until full retirement age. Additionally, we can qualify for Medicare at age 65.^2,3

We are sometimes cautioned that working too much in retirement may result in our Social Security benefits being taxed – but is there really such a thing as “too much” retirement income?

Income aside, there is another question we all face as retirement approaches.

How much control will we have over our retirement transition? In the Transamerica survey, 41% of respondents saw themselves making a gradual entry into retirement, shifting from full-time employment to part-time employment or another kind of work in their sixties.¹

Is that thinking realistic? It may or may not be. A recent Gallup survey of retirees found that 67% had left the workforce before age 65; just 18% had managed to work longer. Recent research from the Employee Benefit Retirement Institute fielded roughly the same results: 14% of retirees kept working after 65 and about half had been forced to stop working earlier than they planned due to layoffs, health issues or eldercare responsibilities.³

If you do want to make a gradual retirement transition, what might help you do it? First of all, work on maintaining your health. The second priority: maintain and enhance your skill set, so that your prospects for employment in your sixties are not reduced by separation from the latest technologies. Keep networking. Think about Plan B: if you are unable to continue working in your chosen career even part-time, what prospects might you have for creating income through financial decisions, self-employment or in other lines of work? How can you reduce your monthly expenses?

Easing out of work & into retirement may be the new normal. Pessimistic analysts contend that many baby boomers will not be able to keep working past 65, no matter their aspirations. They may be wrong – just as this active, ambitious generation has changed America, it may also change the definition of retirement.

As you approach your “third act,” does it need to be adjusted?

Motivational speaker Denis Waitley once remarked, “You must stick to your conviction, but be ready to abandon your assumptions.” That statement certainly applies to retirement planning. Your effort must not waver, yet you must also examine it from time to time.¹

For example, the level of risk you chose to tolerate at 35 or 40 may not be worth tolerating at 55 or 60. Additionally, you may realize that you will need more retirement income than previously assumed. With those factors and others in mind, here are some signs that you may need to double-check your retirement strategy.

Your portfolio lacks significant diversification. Many baby boomers are approaching retirement with portfolios heavily weighted in equities. As many of them will have long retirements and a sustained need for growth investing, you could argue that this is entirely appropriate. If your retirement is near at hand, however, you might want to consider the length of this bull market and the possibility of irrational exuberance.

The current bull has lasted about twice as long as the average one and brought appreciation in excess of 200%. It could rise higher: as InvesTech Research notes, two-thirds of the bull markets since 1955 have gained 20% or more in their final phase. Few analysts think a “megabear” will follow this historic rally, but even a typical bear market brings a reality check. The lesser bear markets since 1929 have brought an average 27.5% reversal for the S&P 500 and lasted an average of 12 months.²

A poor quarter makes you anxious. You start watching the market like a hawk and check up on your investments more frequently than you once did. Some of this vigilance is only natural as you near retirement; after all, you have far more at stake than a millennial investor. Even so, this is a sign that you may be uncomfortable with the amount of risk in your portfolio. A portfolio review with a financial professional could be in order. A semi-annual or annual review is reasonable. One bad quarter should not tempt you to abandon a strategy that has worked for years, only to examine it in the face of sudden headwinds.

You find yourself listening to friends & pundits. Your tennis partner has an opinion about when you should claim Social Security. So does your dentist. So does a noted radio personality or columnist. Their viewpoints may be well-informed, but they are likely expressing what they would do as they share what they feel you should do. If you seem increasingly interested in the financial opinions of friends, acquaintances and even total strangers, or the latest “hot tip” on the market, this hints at anxiety or restlessness about your financial strategy. Perhaps it is warranted, perhaps not. It may be time to reexamine some assumptions.

You wonder about the demands your lifestyle may make on your finances. You want to travel, golf, and have fun when you retire, and those potential lifestyle expenses now seem larger than they once were. Here is another instance where you may want to double-check your retirement savings and income strategy.

You see what were once “what-ifs” becoming probabilities. You sense that you or your spouse might face a serious health issue in the not-so-distant future. It looks as if you may end up raising one of your grandchildren. It seems likely that you will provide eldercare for a sibling who may move in with you. These life events (and others) may prompt a new look at your financial assumptions.

You think you will retire to another state. Say you retire to Florida. There is no state income tax in Florida. So your retirement tax burden may decrease with such a move (though some states have higher property taxes to offset the lack of state taxes). To what degree will geographic considerations affect your retirement income, or need for income? Such geographic factors are worth considering.³

You wonder how deeply inflation will impact your retirement income. A recent Morningstar analysis of retiree spending data compiled by the federal government noticed something interesting: for the typical retiree, spending declines in inflation-adjusted terms between age 65 and age 90. So the assumption that retirees increase household spending over time in light of inflation may be flawed. Of course, inflation has been mild for the past several years. If inflation spikes, however, that assumption might prove wholly valid.³

Looking at your retirement strategy anew has merit. As the years go by, priorities change and needs arise. New questions call for appraisals of old assumptions. Reviewing your approach to investing and saving at mid-life is only rational, for your retirement strategy must suit the objectives you now have before you rather than those you set in your past.

Talk to them about their money (and those who could take it away).

Elders are financially defrauded daily in this country. Just a tiny percentage of these crimes are made public. In fact, the National Adult Protective Services Association (NAPSA) estimates that only 1 in 44 cases of elder financial abuse are reported. A recent NAPSA study found that 11% of seniors had been financially “abused, neglected or exploited” within the past year.¹

Friends, family & caregivers perpetrate much of this financial abuse. They commit 90% of it, NAPSA estimates. Major damage may result to an elder’s finances and physical and mental health: victims of elder financial exploitation are four times more likely to go into a nursing home than their peers, and nearly 10% of the victims end up relying on Medicaid.¹

Frauds range from big scams to little schemes. You likely know about the common ones: the grandparent scam (“Grandpa, I’m in jail in _____ and I need $___ to make bail”), the utility company scam (one criminal keeps the elder busy in the yard as the other burglarizes their home), the lottery scam (a huge prize awaits, the elder need only pay a few thousand upfront to take care of associated taxes). Others are subtler: home health aides severely overcharging an elder for their services, relatives or caregivers using a financial power of attorney to draw down an elder’s bank or investment accounts.

Talking about all this may help to prevent it. Perhaps the best way to introduce the topic is by referring to what happened to someone else – a story coming up on the news or in the paper, an article online. AARP’s Fraud Watch Network emails a monthly newsletter highlighting common scams; it also maintains a map showing per-state occurrences of such crimes.²

A 2014 Allianz Life survey discovered something very encouraging. Seniors who have talked about the issue of financial exploitation with others seem less likely to succumb to it, especially seniors who have talked about such risks in the company of a financial professional.²

The insurer asked more than 2,000 Americans about their awareness of financial fraud – men and women aged 65+, and select family members and friends aged 40-64. It found that 97% of seniors who talked about finances with a hired professional were likely to check their monthly credit and financial statements, while only 84% of those who talked about their finances with no one were likely to do so. It also found that 93% of seniors who communicated with a hired professional were likely to refrain from signing a financial document they could not fully understand; that was true for just 82% of seniors who had never addressed financial topics in the company of professionals, friends or family.²

Another pair of examples: 85% of elders who discussed personal finances consistently shredded or destroyed sensitive financial paperwork while just 69% of those who refrained from such discussion did. Thirty-seven percent of seniors who talked about their finances with a professional were also more likely to have a co-signer for their bank accounts, as opposed to 14% of those who were handling their personal finances solo.²

Have the conversation; have a look at Mom or Dad’s financial situation. It is only prudent to do so. The National Center on Elder Abuse says that the average financial fraud perpetrated on an elder siphons $30,000 out of his or her finances. Think about how devastating that is, especially for a poorer retiree; that may equal a year’s worth of medical expenses, a majority of an elder’s yearly income, or a double-digit percentage of his or her remaining retirement savings. Elders rich and poor need to be warned about such crimes.³

Citations.
1 – napsa-now.org/policy-advocacy/exploitation/ [4/30/15]
2 – allianzlife.com/about/news-and-events/news-releases/preventing-elder-financial-abuse [4/20/15]
3 – tinyurl.com/p4y6pa7 [4/20/15]

What is dollar strength & who invests in it?

You may have heard that the dollar is “strong” right now. You may have also heard that a strong dollar amounts to a headwind against commodities and stocks.

While there is some truth to that, there is more to the story. A strong dollar does not necessarily rein in the bulls, and dollar strength can work for the economy and the markets.

The U.S. Dollar Index has soared lately. Across July 2014-February 2015, the USDX (which measures the value of the greenback against key foreign currencies) rose an eyebrow-raising 19.44%.1

On March 9, the European Central Bank initiated its quantitative easing program. The dollar hit a 12-year high against the euro a day later, with the USDX jumping north more than 3% in five trading days ending March 10. Remarkable, yes, but the USDX has the potential to climb even higher.2,3

Before this dollar bull market, we had a weak dollar for some time. A dollar bear market occurred from 2001-11, partly resulting from the monetary policy that the Federal Reserve adopted in the Alan Greenspan and Ben Bernanke years. As U.S. interest rates descended to historic lows in the late 2000s, the dollar became more attractive as a funding currency and demand for dollar-denominated debt increased.4

In Q1 2015, private sector dollar-denominated debt hit $9 trillion globally. Asian corporations have relied notably on foreign currency borrowing, though their domestic currency borrowing is also significant; Morgan Stanley recently researched 625 of these firms and found that dollar-denominated debt amounted to 28% of their total debt.4,5

So why has the dollar strengthened? The quick, easy explanation is twofold. One, the Fed is poised to tighten while other central banks have eased, promoting expectations of a mightier U.S. currency. Two, our economy is healthy versus those of many other nations. The greenback gained on every other major currency in 2014 – a development unseen since the 1980s.4

This explanation for dollar strength aside, attention must also be paid to two other critical factors emerging which could stoke the dollar bull market to even greater degree.

At some point, liabilities will increase for the issuers of all that dollar-denominated debt. That will ramp up demand for dollars, because they will want to hedge.

Will the dollar supply meet the demand? The account deficit has been slimming for the U.S., and the slimmer it gets, the fewer new dollars become available. It could take a few years to unwind $9 trillion of dollar-denominated debt, and when you factor in a probable rate hike from our central bank, things get really interesting. The dollar bull may be just getting started.

If the dollar keeps rallying, what happens to stocks & commodities? Earnings could be hurt, meaning bad news for Wall Street. A strong dollar can curb profits for multinational corporations and lower demand for U.S. exports, as it makes them more expensive. U.S. firms with the bulk of their business centered in America tend to cope better with a strong dollar than firms that are major exporters. Fixed-income investments invested in dollar-denominated assets (as is usually the case) may fare better in such an environment than those invested in other currencies. As dollar strength reduces the lure of gold, oil and other commodities mainly traded in dollars, they face a real headwind. So do the economies of countries that are big commodities producers, such as Brazil and South Africa.6

The economic upside is that U.S. households gain more purchasing power when the dollar strengthens, with prices of imported goods falling. Improved consumer spending could also give the Fed grounds to extend its accommodative monetary policy.6

How are people investing in the dollar? U.S. investors have dollar exposure now as an effect of being invested in the U.S. equities market. Those who want more exposure to the rally can turn to investment vehicles specifically oriented toward dollar investing. European investors are responding to the stronger greenback (and the strong probability of the Fed raising interest rates in the near future) by snapping up Treasuries and corporate bonds with longer maturities.

Stocks can still rally when the dollar is strong. As research from Charles Schwab indicates, the average annualized return for U.S. stocks when the dollar rises has been 12.8% since 1970. For bonds, it has been 8.5% in the years since 1976. A dollar rally amounts to a thumbs-up global vote for the U.S. economy, and that can certainly encourage and sustain a bull market.7

Make sure you give them a look as you prepare your 1040.

Every year, taxpayers leave money on the table. They don’t mean to, but as a result of oversight, they miss some great chances for federal income tax deductions.

While the IRS has occasionally fixed taxpayer mistakes in the past for taxpayer benefit, you can’t count on such benevolence. As a reminder, here are some potential tax breaks that often go unnoticed – and this is by no means the whole list.

Expenses related to a job search.

Did you find a new job in the same line of work last year? If you itemize, you can deduct the job-hunting costs as miscellaneous expenses. The deductions can’t surpass 2% of your adjusted gross income. Even if you didn’t land a new job last year, you can still write off qualified job search expenses. Many expenses qualify: overnight lodging, mileage, cab fares, resume printing, headhunter fees and more. Didn’t keep track of these expenses? You and your CPA can estimate them. If your new job prompted you to relocate 50 or more miles from your previous residence last year, you can take a deduction for job-related moving expenses even if you don’t itemize.¹

Home office expenses.

Do you work from home? If so, first figure out what percentage of the square footage in your house is used for work-related activities. (Bathrooms and other “break areas” can count in the calculation.) If you use 15% of your home’s square footage for business, then 15% of your homeowners insurance, home maintenance costs, utility bills, ISP bills, property tax and mortgage/rent may be deducted.²

State sales taxes.

If you live in a state that collects no income tax from its residents, you have the option to deduct state sales taxes paid the previous year.¹

Student loan interest paid by parents.

Did you happen to make student loan payments on behalf of your son or daughter last year? If so (and if you can’t claim your son or daughter as a dependent), that child may be able to write off up to $2,500 of student-loan interest. Itemizing the deduction isn’t necessary.¹

Education & training expenses.

Did you take any classes related to your career last year? How about courses that added value to your business or potentially increased your employability? You can deduct the tuition paid and the related textbook and travel costs.^3,4

Those small charitable contributions.

We all seem to make out-of-pocket charitable donations, and we can fully deduct them (although few of us ask for receipts needed to itemize them). However, we can also itemize expenses incurred in the course of charitable work (i.e., volunteering at a toy drive, soup kitchen, relief effort, etc.) and mileage accumulated in such efforts ($0.14 per mile, and tolls and parking fees qualify as well).¹

Armed forces reserve travel expenses.

Are you a reservist or a member of the National Guard? Did you travel more than 100 miles from home and spend one or more nights away from home to drill or attend meetings? If that is the case, you may write off 100% of related lodging costs and 50% of meal costs  and take a mileage deduction ($0.56 per mile plus tolls and parking fees).¹

Estate tax on income in respect of a decedent.

Have you inherited an IRA? Was the estate of the original IRA owner large enough to be subject to federal estate tax? If so, you have the option to claim a federal income tax write-off for the amount of the estate tax paid on those inherited IRA assets. If you inherited a $100,000 IRA that was part of the original IRA owner’s taxable estate and thereby hit with $40,000 in death taxes, you can deduct that $40,000 on Schedule A as you withdraw that $100,000 from the inherited IRA, $20,000 on Schedule A as you withdraw $50,000 from the inherited IRA, and so on.¹

The child care credit.

If you paid for child care while you worked last year, you can qualify for a tax credit worth 20-35% of that amount. (The child, or children, must be no older than 12.) Tax credits are superior to tax deductions, as they cut your tax bill dollar-for-dollar.¹

Reinvested dividends.

If your mutual fund dividends are routinely used to purchase further shares, don’t forget that this incrementally increases your tax basis in the fund. If you do forget to include the reinvested dividends in your basis, you leave yourself open for a double hit – your dividends will be taxed once at payout and immediate reinvestment, and then taxed again at some future point when they are counted as proceeds of sale. Remember that as your basis in the fund grows, the taxable capital gain when you redeem shares will be reduced. (Or if the fund is a loser, the tax-saving loss is increased.)¹

As a precaution, check with your tax professional before claiming the above deductions on your federal income tax return.