Volatile Times: Tax Loss Harvesting, 529 Plans, and Risk Tolerance
Many investors have sold positions over the past few weeks to lock in capital losses. It’s important to distinguish capital losses from charitable deductions, as the two operate differently from an income tax perspective. Tax loss harvesting allows losses to be carried forward indefinitely until they are fully used. However, the losses that can be written off in any given year are limited to realized capital gains. In contrast, charitable deductions are typically limited to 30% to 60% of adjusted gross income, depending on the nature of the gift and the type of charity, and any unused portion can only be carried forward for up to five years.
Given the recent market volatility, another topic that has come up frequently is ensuring that adequate 529 funds are available for education expenses. This is an excellent opportunity to revisit these plans and ensure that the investment strategy and liquidity needs align with the intended tuition payment timeline. For instance, if an $80,000 tuition bill is due this year, keeping those funds in short-term treasuries or less risky and liquid investments makes sense. On the other hand, if distributions are five or more years away, there may be room for a more growth-oriented allocation.
Periods of volatility are a valuable opportunity to evaluate your risk tolerance. Investors often respond to risk assessment questions based on current market conditions, feeling more aggressive when markets are rising and more cautious when falling. As Mike Tyson famously said, “Everyone has a plan until they get punched in the mouth.” Observing actual behavior during volatile periods can offer insight into true risk tolerance. It may be time to revisit your long-term asset allocation if you are experiencing stress or even panic due to current market conditions.
Please get in touch with your Wealth Manager with any questions on tax loss harvesting and 529 plan allocation, and discuss your risk tolerance.er with questions.
Weekly Commentary
Wealth Planning Commentary – April 14, 2025
Mallon FitzPatrick
Volatile Times: Tax Loss Harvesting, 529 Plans, and Risk Tolerance
Many investors have sold positions over the past few weeks to lock in capital losses. It’s important to distinguish capital losses from charitable deductions, as the two operate differently from an income tax perspective. Tax loss harvesting allows losses to be carried forward indefinitely until they are fully used. However, the losses that can be written off in any given year are limited to realized capital gains. In contrast, charitable deductions are typically limited to 30% to 60% of adjusted gross income, depending on the nature of the gift and the type of charity, and any unused portion can only be carried forward for up to five years.
Given the recent market volatility, another topic that has come up frequently is ensuring that adequate 529 funds are available for education expenses. This is an excellent opportunity to revisit these plans and ensure that the investment strategy and liquidity needs align with the intended tuition payment timeline. For instance, if an $80,000 tuition bill is due this year, keeping those funds in short-term treasuries or less risky and liquid investments makes sense. On the other hand, if distributions are five or more years away, there may be room for a more growth-oriented allocation.
Periods of volatility are a valuable opportunity to evaluate your risk tolerance. Investors often respond to risk assessment questions based on current market conditions, feeling more aggressive when markets are rising and more cautious when falling. As Mike Tyson famously said, “Everyone has a plan until they get punched in the mouth.” Observing actual behavior during volatile periods can offer insight into true risk tolerance. It may be time to revisit your long-term asset allocation if you are experiencing stress or even panic due to current market conditions.
Please get in touch with your Wealth Manager with any questions on tax loss harvesting and 529 plan allocation, and discuss your risk tolerance.er with questions.
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