Know Your Finances


Sally from Arden asks…

Can I make an IRA contribution if I no longer work but my husband still works?

Yes you can Sally, provided you are not yet 70.5 years old! Well, technically your husband makes the contribution for you as a spousal IRA contribution.  You and your husband must file a joint income tax return and your husband must have earned income of at least the amount you contribute to the IRA. So, if you are both over 50 years old and your husband’s earned income is more than $12,000 in 2009, you can each contribute $6,000 to your IRA (if you are both under 50 years old you can each contribute up to $5,000).  You cannot make an IRA contribution if you are over 70.5 years old. If you don’t become 70.5 until 2010 you can still make a 2009 contribution.

Fred from Chadds Ford asks…

A friend told me that I need to be careful about buying mutual funds near the end of the year. Is this true? 

Fred, it is true that you should be careful. You need to do a little digging into the fund before you invest. Many mutual funds make distributions in December.  The distributions can be short-term and/or long-term capital gains and they result from asset sales done in the course of managing the fund throughout the year. Mutual funds must pass out to its shareholders income and capital gains. The reason you want to be careful is that if you buy a fund and are a shareholder of record before the distributions are paid out you will have to declare those gains on your tax return and pay tax on them. It’s not so bad if you owned the fund for at least several months and have participated in share growth during that time. But it can be quite annoying to pay taxes on distributions from a fund that you have held for a very short time. If, however, you believe strongly in investing in a particular fund before year-end, go the extra mile and search on the fund website to see if they have projected information about their distributions; many mutual fund companies will list the estimated amounts for several weeks prior to the actual payment date. If the distributions aren’t excessive it may be worth it to you to buy the shares.

Elizabeth from Chadds Ford asks…

I own stocks that are less than what I paid for them two years ago. I like the stocks and am afraid that if I sell them to use the losses that I will miss out on their recovery.

Elizabeth, there are two ways you can harvest those losses and still own the stocks. One way is to double up on the position and then sell the older higher cost shares in 31 days. There is an IRS rule, called the “wash sale” rule that says that you cannot claim the loss from an asset if you buy back the same asset within 30 days. So, let’s look at a double up example.  You bought 100 shares of GE in May 2008 that cost you $33 a share and you decide to buy another 100 shares of GE today at $16 a share. You now own 200 shares of GE and each 100 share lot has its own cost basis. In 31 days (assume that GE hasn’t changed in price) you will sell 100 shares and choose the shares with the higher cost basis of $33 for tax purposes. That will give you a realized loss of $17 a share that you can net against realized gains form other asset sales.  Of course this won’t help you for 2009 taxes but it will for 2010 and possibly beyond. If you had done this two months ago you could have utilized the loss in 2009.

The other strategy is a plan to buy back shares. You sell all 100 shares of GE today and realize that loss of $17 a share. Then you will wait for 31 days before buying back the 100 shares of GE. In this case, you are taking a risk that GE will appreciate considerably between now and 31 days from now when you can buy it back.  You will be able to use the loss for your 2009 taxes.

If you want to make sure you are still invested in the market during this 31 day period you can always buy a different stock in the same industry as GE.  This “similar but different” strategy works well with diversified mutual funds or exchange traded funds that invest in similar stocks. The wash sale rule won’t kick in if you buy back a different yet similar fund from the one you are capturing the loss from.

I look forward to receiving your questions about anything related to investments, retirement planning, or the economy. Send them to: and write “Chadds Ford Live” in the subject line.

About Ellen Le

Ellen is the Founder and President of Ascend Investment Management. She was born in Philadelphia and has lived in the Delaware Valley for most of her life. When she is not researching investments and managing portfolios, she pursues her interests in tennis, bridge, hiking and art. Beginning her investment career in 1981 as a stockbroker at E.F. Hutton and Co., Ellen now has over 20 years of investment management experience. Prior to founding Ascend in 2006, she managed high net worth assets for many years at Bank of America, Mellon Bank, and most recently at Davidson Capital Management. At Davidson Capital Management, Ellen served as a Senior Vice President and Senior Portfolio Manager of the firm. She managed assets for more than 50 family relationships and was a core member of the firm’s Investment Committee.Ellen earned a BA in History from Brown University and a MBA in Finance & Investments from The George Washington University. She is a member in good standing of the Chartered Financial Analyst (CFA) Institute, which is a global organization dedicated to setting a high ethical standard for the investment profession. Her professional memberships include the Delaware County Estate Planning Council, Women Enhancing Business (WEB), and the Chadds Ford Business Association. She is a docent with the Delaware Art Museum and an active volunteer with the Brown University Alumni Association.



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