I'VE WRITTEN BEFORE about harvesting tax losses and using them to offset the gains from selling other investments. We have a bit of a sprawling portfolio, with numerous small positions and lots of embedded capital gains. Gradually harvesting gains would simplify the portfolio and make it more tax-efficient. And if we do so during these early retirement years, while our income is low, and if we can partially offset those gains with realized losses, we should be able to harvest gains at low rates—and perhaps even pay 0% in capital gains taxes. But should we sell? Lately, I’ve come to realize that—from a long-term tax perspective—it may be better to leave the gains alone, especially since we’re residents of a community property state. Living in such a state may also argue for combining individual taxable accounts into joint accounts. There are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. The other 41 are separate property states. In a community property state, all property accumulated during a marriage is considered the property of both partners. This is a key consideration in a divorce and the resulting division of assets. But it also has important implications for investment and estate planning. As many readers know, when the owner of property dies, that owner’s heirs get a step-up in cost basis on inherited property that’s held outside a retirement account. For example, if I bought a vacation home for $300,000 that’s worth $500,000 today, I would have a $200,000 capital gain if I sold it. Likewise, if I bought 1,000 shares of ABC company at $100 a share and they’re now at $150, I’d have a capital gain of $50,000 if I sold today. But if I wake up today planning to sell but instead die before doing so, my heirs inherit the house and the stock at today’s value. Result? When they sell, their cost basis will be today’s value, not my original cost basis. This step-up means the gains between my purchase and my death go untaxed. As you can imagine, on assets held for many years, this can be a huge tax savings. [xyz-ihs snippet="Mobile-Subscribe"] The above is true regardless of whether one lives in a community property state or not. Here’s where the state of residence comes into play: In a community property state, assuming my heir is my spouse, the step-up occurs not only on property owned by me, but also on the full value of property we own jointly. How does this work? Let’s say that, in addition to the shares of ABC company I own in my taxable account, my spouse owns shares of XYZ company in hers. Since those shares are in her own individual account, she gets no step-up on XYZ when I die. Instead, I would get a step-up when she dies. But let’s say we held both these stocks in a joint account. In most states, the step-up in the joint account would be limited to 50% of each position. But in a community property state, the surviving spouse would get a full step-up on both holdings. In the individual taxable brokerage accounts that my wife and I own separately, we have significant capital gains, so—from an estate planning perspective—it makes sense to combine them into a joint account or to change the account registration on both accounts to make them joint. That way, when either of us dies, the survivor gets a full step-up on everything outside our retirement accounts. It could also simplify the portfolio a bit. What are the possible downsides of combining accounts? Both parties will have full control of all assets. If this is a concern for you, you probably shouldn’t do it. You’d lose the cybersecurity benefit that comes with having assets housed in accounts with separate login credentials. Moving to a separate property state later means you’d no longer get the full step-up on jointly held assets. It would complicate a potential divorce and might mean surrendering greater wealth than you otherwise would. For us, combining accounts seems like a good idea for the larger step-up alone. If we did so, we might choose to forgo realizing capital gains during our low-income years, knowing that there will eventually be a step-up on everything. Instead, we could use these low-income years to maximize Roth conversions. Michael Perry is a former career Army officer and external affairs executive for a Fortune 100 company. In addition to personal finance and investing, his interests include reading, traveling, being outdoors, strength training and coaching, and cocktails. Check out his earlier articles. [xyz-ihs snippet="Donate"]

WE'VE BEEN TAKING stock of our nomadic life. We’re quite happy living as we are. But we’re also conscious that things could change at any time for multiple reasons, and we’re ready to shift gears if needed. We aren’t exactly “living the dream”—because being nomadic was never our dream. We hadn’t even thought about it until a few months before we started our travels. We officially uprooted ourselves—meaning we sold our Houston home—after we’d been away from the place for most of the first year of my retirement. We didn’t want to stay where we were, but we also didn’t have a place we wanted to move. Now, as we enter our third year as nomads, we’re thinking of making at least a few smaller changes to our itinerant lifestyle. Complaints? I have a few. But then again… (sorry, Mr. Sinatra). I miss my kettlebells, and it’s hard to maintain my certified instructor standards without heavier ones, which you can’t find in most gyms. My wife is an amazing cook and enjoys it, but it’s less enjoyable when a kitchen has crummy pans and knives, plus she has her own fitness goals that are difficult to achieve when bouncing among whatever gyms are available, if any. It’s also a challenge for us to eat properly when dealing with different kitchens and different stores, especially so when you throw in certain dietary requirements. To be fair, we’ve been able to enjoy some impressive kitchens and gyms. Still, inconsistent eating and fitness are our biggest day-to-day concerns. I realize these will strike some as minor issues, but people are different and, for us, such things are important. We’ll often go out of our way and pay more than usual for short-term access to a good gym or for the food that we need or want. We rent a storage unit in Texas that we haven’t seen since we filled it, and it’s become a subject of frequent discussions. Hurricane Beryl nudged us toward action when it caused our storage facility to lose power for an extended period. When we go back to the U.S. in early 2025 to see our parents, we’ll grudgingly make time to go to the storage unit… and do something. Our options range from further downsizing to a full or partial move of our belongings to Virginia, near where we store our car. On the other hand, we might soon find we’ve wasted time and money moving things we must move again or, alternatively, that we got rid of things we wish we still had. This used to be a mental obstacle to action, but we’ve gotten over it. Whatever we decide won’t be perfect, but it’ll hopefully improve the situation and we’ll stop talking about the storage unit for a while. So far, these things aren’t enough to make us settle down. But we have been thinking about being in one location for a longer period. Since we started this journey in late 2022, we haven’t been in one place longer than five weeks. Let me tell you that, even if you only have a carry-on and a backpack, unpacking for five weeks is quite a treat, and three to six months has some real attraction. It would be nice to be somewhere long enough to become part of a community and develop a routine that’ll last for a little while, even if it’s not necessarily where we plan to spend years. Would we move some of our things out of storage? Who knows? But for a several months’ stay, we wouldn’t be beyond buying things we need and donating them when it’s time to move on. Where would we go? This is another frequent topic of discussion. We like England a lot and can stay in the UK for up to six months on a tourist visa. I’m partial to Italy and speak the language, but a tourist visa there will only get us three months. We haven’t found that many places in the U.S. where we’re excited to stay a long time, but that’s partially because so much of our travel has been out of the country. For no particular reason, some places in the U.S. that were once on the short list for our future home don’t hold the same appeal they once did. We sometimes think about buying property, possibly to use as a base for a couple of months each year and possibly just as an investment. That said, we don’t keep a lot of cash or bonds in our taxable accounts, waiting for a home purchase that may never happen. Buying would almost certainly entail selling stocks in those accounts. We’d be ready to do this, even if the market were down, as we could offset this with a shift into stocks in our tax-protected accounts. This could apply not only to buying property, but also to any other eventuality that suddenly required us to spend significant cash. Because of the inherent uncertainty in our lives, we value flexibility in our finances. Our next few months of travel and expenses are usually predictable, even though locations are changing, but we don’t know what we don’t know. A medical emergency or a serious health diagnosis could mean a move at short notice to get care. It would be a place that isn’t home, nor necessarily a town we know or where we have a circle of friends. More likely than not, we’d initially deal with the situation outside the U.S. Likewise, a serious family situation might provoke a similar sudden move. With both of us around age 60, living in unfamiliar surroundings, and with four parents in their 80s, this is not an insignificant consideration. We’re thankful that, as we consider possible changes, our current motivation to make those changes isn’t health, family or financial problems, or because there’s some necessity we’re missing. Rather, it’s the desire for more of certain things that aren’t necessities, but which are important to us. That said, we also enjoy novelty and exploration. If we were to settle into a routine and a community, even if we enjoyed it, I suspect we’d want to shake up our lives occasionally. We like our lifestyle and we’re happy, and we recognize that the ability to enjoy it is a gift. Michael Perry is a former career Army officer and external affairs executive for a Fortune 100 company. In addition to personal finance and investing, his interests include reading, traveling, being outdoors, strength training and coaching, and cocktails. Check out his earlier articles. [xyz-ihs snippet="Donate"]

AFTER YOU QUIT the workforce and before you start Social Security, you may find yourself with little or no taxable income. As many financial experts have pointed out, this can be a great time to convert a traditional IRA to a Roth and pay taxes at a relatively low rate. But here’s another tax-savings opportunity to consider: If you have winning stocks and funds in your regular taxable account, this period can also offer the chance to realize long-term gains and pay taxes at a 0% federal rate. The key: Keep your taxable income low, including paying attention to capital gains distributions from your mutual funds. Those distributions may leave you with less room to realize gains at a 0% rate. How might this work in practice? Let’s take the example of Bob and Jane, a retired couple not yet receiving Social Security. They collect a $30,000 annual pension. In 2020, their taxable investments produced $2,000 in interest, $10,000 in qualified dividends and $10,000 in long-term capital gains fund distributions. Assuming these numbers are the same this year, Bob and Jane would be looking at $52,000 in total income. Result: They could intentionally realize another $53,900 in long-term capital gains, bringing their total income to $105,900—and pay nothing in capital gains taxes. If they take that $105,900 and subtract a married couple’s $25,100 standard deduction, they would be left with taxable income of $80,800. (The figures for those filing as single individuals would be half these levels.) As long as their total taxable income doesn’t breach that $80,800 threshold, any long-term capital gains—whether distributed by their mutual funds or the result of selling winning investments—would be taxed at 0%. [xyz-ihs snippet="Mobile-Subscribe"] A key problem: It’s highly unlikely that Bob and Jane’s numbers are going to be the same this year as in 2020, and most can’t be known in advance. Yes, the pension amount is probably fixed, but it’s harder to know precisely how much in interest and dividends they’ll receive during the year, and next to impossible to know what capital gains will be paid out by their mutual funds. Still, they can anticipate 2021’s numbers will be at least somewhat similar to 2020’s, and then finetune their calculations closer to year-end. Here’s what they’ll need to pay attention to: Pension. Bob and Jane should know the precise amount of pension income they’ll receive in 2021, though the amount may be higher than 2020 if the pension is inflation-linked. Dividends and interest. They can know with fair certainty the interest payments they’ll receive, as well as what dividends they’ll receive from individual stocks. But they should check near year-end. Fund capital gains distributions. Last year’s distributions are, alas, a poor predictor of this year’s. Instead, Bob and Jane will want to look out for the fourth-quarter announcements from their funds, detailing the capital gains that the funds plan to distribute by year-end. Any capital losses realized in 2021. These could be used to offset gains. Any new income, potential tax deductions larger than the standard deduction, or other unexpected factors that could change the math. By waiting until the fourth quarter to realize capitals gains, Bob and Jane can know what their total income and losses from various sources will be for the full year. They’ll then be able to calculate with some precision how much in long-term capital gains they can realize at the 0% tax rate. What if they realize a bit more? The additional gains would be taxed at 15%. This would only apply to those gains over and above the $80,800 taxable-income threshold, so it wouldn’t be the end of the world. Michael Perry is a former career Army officer and external affairs executive for a Fortune 100 company. In addition to personal finance and investing, his interests include reading, traveling, being outdoors, strength training and coaching, and cocktails. His previous articles were Working My Losses and An Appreciated Gift.  [xyz-ihs snippet="Donate"]

SOMEONE I KNOW recently learned she has a rare cancer that’s already at stage four. She’s getting treated for the cancer, as well as for various complications. I’m not surprised she’s battling the disease. She’s strong, independent and driven. What is surprising? She’s never written a will, and must now deal with that along with a serious medical issue. Moreover, among her three adult children, one still lives at home—and has a child of her own. Both mother and child are entirely dependent on Grandma for financial support. Why don’t people get wills drawn up? It may be the complexity. Who should get the house? Who should get the car—or should it be sold and cash distributed? Who should get Grandpa’s watch? Would a trust be better? It can seem like a lot of decisions, especially if you’re dealing with a life-threatening illness. My advice: Don’t let yourself end up in this situation—and don’t let the perfect be the enemy of the good. Pull up a free or low-cost template for your state from the many available on the internet and fill in the blanks. If it helps, assume you only have an hour left in the world to do it. Keep it simple. Consider letting your heirs figure out how to handle the house, the car and various possessions. The most important thing is to make clear that these assets should pass to them. Head down to your local notary, grab a couple of witnesses who aren’t named in the will, and you’ll be done. Naming someone to take care of minor children or pets is more involved, as you’d want to discuss this with whoever you’re naming. In some states, designated guardians may also need to sign, showing that they’ve accepted their role. Wait, don’t you need a lawyer? Maybe, maybe not. In any case, do a will yourself first. It will help you start thinking about what you want. And if you should die before you get around to consulting an attorney, you won’t die intestate—meaning, without a will. Having a will is crucial to reduce legal wrangling and family fights after your death, including battles over who should take care of any children still considered minors. As for Grandpa’s watch and other possessions, create a document separate from the will that lists your desires. This isn’t legally binding, but it can help your heirs and executor know what your preferences would have been. Such a list is also easier to add to or change than the will itself.

Last week as Hurricane Beryl approached our Texas storage unit, the company notified us that the office would be closed until further notice, a sensible precaution to let staff stay home to ride out the storm. Beryl came through on July 8. The office is still closed, with apparently no one working from home. The area has also been without power since the storm, which means that our climate controlled unit is, well - not.  So, we’re getting a little concerned about some of our belongings in the heat and humidity of the season. Meanwhile, we’re out of the country with no plans to be back until 2025. We gave a call to our insurance company to let them know the situation and check our options. It turns out while we have very good renters insurance, there are significant limitations on what it will cover in a storage unit. That’s a bummer. Because we’re nomadic, the storage unit contains almost everything we own. Once power is on, we may ask a friend to go over and do a look and smell test. We’re getting prepared in our minds for that to fail or be inconclusive and for at least one of us to have to go back and see what’s what. We figure if there’s a potential humidity/mold problem emerging, it may be better to scuttle our plans and deal with it now rather than after several months.  There will hopefully be a sequel to this post in a week or two saying everything seems fine and our life continues as planned. Or, there will be a sequel on dealing with the damage. Meanwhile, while concerned, we’re very aware that we’re only worrying about belongings, not our home or our personal health and safety, as so many there are.

TRAVELING TO AND living in foreign countries has been a big part of my adult life. My wife and I are looking forward to even more travel now that we’re no longer working. In fact, we just spent three months in Europe. It’s our second such trip since retiring late last year. Over the decades, we’ve given a fair amount of thought to how we can stay safe during our travels. Below are 10 suggestions for those venturing beyond our borders. Many of these tips also apply if you’re traveling within the U.S. 1. Safeguard your passport. Sure, this is common sense. But it’s first on the list for a reason. Take it seriously. There are different places to secure your passport—hotel safe, double closure pocket, hidden travel wallet. Make a photocopy or take a picture of the personal information page with your phone, and keep your actual passport safely tucked away. Many times, when folks ask for your passport, all they really need is the info that’s on it. But have no doubt: The airline taking you home wants the real thing. Replacing credit cards or a driver’s license would be a hassle. But those pale in comparison with trying to get home without a passport or replacing it while overseas. 2. Separate your credit cards. Replacing credit cards outside your home country isn’t as simple as getting new ones in the mail. If you have more than one—and you should if you travel—keep them separate so they aren’t all lost or stolen at once. For example, my wife and I travel with two joint credit cards. I carry card A in my wallet, and card B is with my passport. My wife carries her card B, and her card A is with her passport. Of course, both A and B have no foreign transaction fees. When we want to pay for something, one of us pulls out whichever card we want to use. If one of our wallets is lost or stolen, only one account is compromised, and we can use the other. There’s also a card C, which is our main one and waits for us at home. That account is safe even if all our stuff is stolen. Extra tip: Have apps for your cards set up on your phone so you can easily lock the account as soon as you know your card is missing, no matter what time it is at home. 3. Separate your IDs. If some piece of identification gets stolen despite your best efforts, it’s good to have a backup. You should always carry identification, but that doesn’t have to be your passport. You might keep a driver’s license in your wallet and secure your passport somewhere else. I take my retired military identification with me overseas, along with my Global Entry card, but I don’t keep all these together. 4. Get a travel wallet. It might be anywhere on your body, but the key is that it’s hard to see and hard to pick if it is seen. I suggest using it for important items and then continuing to carry a normal wallet so you can pay for stuff or produce ID without revealing you have another wallet hidden. My regular wallet has my driver’s license, a single credit card, a debit card, a health insurance card and some cash. I don’t always use my hidden travel wallet, but it’s nice to have. I’ve used it when I’m forced to carry a lot of cash, or when I know I’ll need to produce my physical passport but don’t want it in my open pocket all day. I also use it on travel days when passing through high pickpocket areas, such as a train station. 5. Identify your bags. Make sure your suitcase, backpack or purse has your contact details inside. Also, put something on it that makes it quickly and easily identifiable as yours. A distinctive ribbon or piece of tape also helps owners of similar-looking bags realize it’s not theirs. [xyz-ihs snippet="Mobile-Subscribe"] We’ve never used Apple AirTags, but I’ve read that these and similar coin-sized devices were the only reason lots of travelers got their lost luggage back this summer. They’re small and cheap enough that we’re going to consider using them not only for luggage, but also for our wallets and keys. It’s not unheard of for a thief to remove cash and toss the wallet or purse in the trash. It would be nice to at least get the other stuff back. 6. Pack mindfully. In some situations, you may not be able to keep control of your bags in the way you’d want. Several times in the last few months, we’ve had to stow luggage under a bus. Other people were getting off and taking luggage—out of our sight—while we remained on board. We’ve also had to stow bags on a rack two train cars down from our seats, as well as in other less-than-optimal situations. Make sure that, when you pack, your most important items are in a backpack or purse that’s always under your direct control. 7. Consider hiding valuables. Put things you care about deeper in your backpack, not in the most convenient outer pocket. If you lock belongings in a car trunk, consider putting your most valuable items in an innocuous plastic bag. A thief who breaks in will most likely grab your luggage—but not every little thing in the trunk. Not everywhere you stay is going to have a safe, so consider hiding things you care about elsewhere in your room. I’m one of those people who might forget he did this until he’s 50 miles away, so I’d have to be pretty concerned to take that extra step. Hello travel wallet. 8. Secure your communications. Continue to observe good internet safety practices. Recognize this may be harder when you’re away from home. Just because your hotel wi-fi requires a password doesn’t mean it’s secure. If your phone comes with a personal hotspot, you can use it to generate a more secure internet connection for your computer. Speaking of phones, add a PIN code to your SIM card. It’s not inconvenient to you, as the device will generally only ask for it when it’s completely powered off and back on. It will, however, prevent a thief who steals your phone from using your SIM card. If you’re traveling with a computer, secure it with a password, too. 9. Carry some cash. Sometimes, there’s no substitute. On those occasions, it may not matter much what currency it is. U.S. dollars always seem to work in a pinch. Don’t keep all your cash in the same place. (I was going to make a joke about carrying traveler’s checks, but I just learned those are still around, though far less used these days and probably not a good option for most people.) 10. Observe good personal safety practices. Be alert, no matter where you are. Some areas will be more prone to criminal activity, but—as a foreigner—you may not realize you’ve stumbled into a riskier part of town. Looking for further suggestions? The FBI has published tips for business travelers and students. Michael Perry is a former career Army officer and external affairs executive for a Fortune 100 company. In addition to personal finance and investing, his interests include reading, traveling, being outdoors, strength training and coaching, and cocktails. Check out his earlier articles. [xyz-ihs snippet="Donate"]