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The recent $350 billion tax cut has some baby boomers looking ahead to retirement asking if they should be making changes to their investments in order to capitalize on these cuts.

Two of the changes in the new tax law address long-term capital gains and the tax on dividends. Long-term capital gains taxes have been reduced from 20% to 15% for investors in most tax brackets. Dividends, which were formerly taxed at the investor’s marginal tax rate, are now taxed at a flat 15%.

But planners working with the baby boomer market overwhelmingly agree that these changes, which were surrounded with such fanfare, do not warrant modification of their clients’ investment strategies.

“I haven’t made any strategic changes at this point,” says Jeffrey West, a financial advisor with Cohen Financial Group, Framingham, Mass.

Previously, when advising baby boomers on the investments held in their taxable accounts, West would prefer not to use dividend-paying stocks and mutual funds. Rather, he would focus on investing in stocks and funds that would yield good capital gains.

“Now all of a sudden we have a low tax bracket for dividends–it becomes less of an issue,” he says.

Even so, West isn’t going after dividend-paying investments for his baby boomer clients. West feels that dividend-paying stocks and funds are more appropriate for retirees who are looking for income from a variety of sources, rather than the baby boomers, who have only just started to enter or think about retirement.

Michael Goss, president of Michael Goss and Associates, Overland Park, Kan., is also not making any changes in his investment advice for baby boomer clients. But he does note that some clients may be more apt to sell an investment now, due to the lower capital gains tax rate. “With the 15% tax rate now, it might make more sense,” he says.

Like the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), the new tax law has a variety of sunset provisions. For instance, the capital gains tax reduction will not apply to assets sold after Jan. 1, 2009. Also, the dividend tax cut will only last through 2008, at which time dividends will once again be taxed at investors’ marginal tax rate.

“It’s short-lived,” says James Jacobs of Jacobs Financial Group, Chesterfield, Va. “You’ve got some other options, but it’s not going to make any major changes in the long run,” he says.

Jacobs adds that for a retiree who may be looking for income, the tax reductions may have a positive short-term impact, but for those boomers looking ahead to retirement, he isn’t making any changes.

“You can supplement your current investment objectives with these changes as an add-on, but not a complete change,” he says.

“For the majority of boomers we’re dealing with, we don’t feel there’s a need to make a strategic change,” adds Joe Wimpee, of The Joe Wimpee Agency, Rockwell, Texas.

Rather than modify his boomer clients’ investment strategies, Wimpee feels the tax law changes provide him with an opportunity to build on client relationships.

“These changes give you the opportunity to discuss some new information that might make them [clients] feel more comfortable. In turn, they may want to invest more, or buy more, or tell a friend about you,” he says.


Reproduced from National Underwriter Life & Health/Financial Services Edition, July 28, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.