Avoid The December Rush
Updated: Jan 17
Now is the time to start taking care of year-end financial tasks to avoid the December rush, as most investment and tax strategies take time and planning.
We have started reviewing all taxable portfolios to take advantage of harvesting losses if available, with the goal to offset any realized capital gains to decrease your overall tax liability. If you have a loss carryforward or any significant losses or gains from investments outside of our management, please let us know so that we can factor that into our planning. Many of our clients have heard me talk about not letting the tax tail wag the investment dog. While we want to take advantage of tax loss harvesting opportunities, the investments and client objectives take precedence over the tax bill, unless we are advised differently.
What are some things that you can do to make sure you are in good shape before the December 31st deadline?
The following are some helpful year-end reminders:
Workplace Retirement Plans - If you are still working, make sure to maximize contributions to your retirement plan. In 2017, you can contribute up to $18,000, or $24,000 if you're age 50 or older, and you have until December 31 to reach that limit. Reach out to your employer's payroll department, or if we manage a Solo 401(k) for your self-employment income, contact our office on how to make contributions by year-end.
IRA Savings - If you earn taxable income and are under the age of 70 ½, you can contribute up to a maximum of $5,500 ($6,500 if you are age 50 or older), although it may or may not be tax deductible. The IRS gives you until April 18, 2018 to make your contribution for 2017, but it is always a good idea to review how much you still may want to contribute.
Charitable Contributions – If you have not yet supported your favorites charities and are planning on doing so, please remember that you can use gifts of appreciated stock instead of cash. In addition to benefiting the charitable organization, you avoid paying taxes on your investment gain while receiving an income tax deduction for your gift. You may want to consider a donor-advised fund, a type of charitable giving program that allows you to make tax-deductible contributions, invest in a pooled fund, and then support charities at any time.
College Savings - If you contribute to a 529 plan (or wish to open one prior to year-end), you should review how much you have gifted to your children or grandchildren this year. Federal tax rules allow annual gifts of $14,000 per person per year. If you are married, you and your spouse can give $28,000 per person per year.
Required Minimum Distributions from IRAs - If you are over 70 ½ and have not yet taken your distribution, our office will be in contact to ensure that your RMD is satisfied for the year. As a reminder, RMDs from all of your retirement assets should be taken or you will face a 50% excise tax on any undistributed amounts. If you want to donate to charity this year, you may want to consider a qualified charitable distribution (QCD), which is a direct transfer of funds from your IRA to a qualified charity, which counts toward your RMD for the year up to $100,000. This can be a significant tax advantage, so we are happy to work with your tax advisor if you are interested.
Employee Open Enrollment – Fall is open enrollment season for most employees, when you can enroll in or change any of your company’s benefits. If you are enrolling in a high-deductible health plan with a health savings account (HSA), we recommend contributing the maximum amount if your budget allows. HSAs offer a triple tax break - not only are your contributions made with pre-tax dollars, but earnings accumulate tax free and qualified medical expenses aren’t taxed. HSAs are also vehicles to save for retirement, as you do not have to use it in the current year and can allow it to grow over time to help pay for future medical expenses.
As always, please let us know if you have questions. Year-end is also the perfect time for a check-in to see if your investments are in line with your financial goals, especially if you have had any changes in your personal situation. If you would like so schedule a meeting, please reach out to us.