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Financial & Estate Planning

Prevent the “Humbug” When Planning for Year-End

As usual, year-end feels like it’s closing in all too fast and the joys and pressures of the holiday season will soon be in full swing, but don’t stress, you still have time to make meaningful decisions that can positively impact your finances for 2015.

While not always possible, we recommend completing year-end planning items by early December, especially if you intend to make personal or charitable gifts from your portfolio. There is always a risk that planning items will not get completed if the request is made in the last few weeks. The sooner you can get started, the better!

In no particular order, the following is a list of year-end planning items. This list is certainly not all-inclusive, but hopefully it helps to remind you of a few planning opportunities to consider. Please give us your feedback, and don’t hesitate to contact your Wealth Advisor if you have any questions.

Have you contributed to your employer retirement plans IRAs, and Roth IRAs?

Contribute the maximum amount to a retirement plan you are eligible and able to make. Be sure to make catch-up contributions if you are age 50 or older. Also, if you have children with earned income, they should consider contributing to an IRA or Roth IRA to get a head start on saving.

Are you getting the most out of your 401(k)?

We often encounter 401(k) and 403(b) accounts that have not been reviewed in quite some time. Investment options in these accounts change; as do markets, fund managers and risks. Click here to continue reading Getting the Most Out of Your 401(k).

Have you spent all of the funds in your flexible spending account (FSA)?

Any funds remaining in your FSA could be lost if not spent on qualified expenses before year-end.

Did you take your required minimum distributions (RMDs)?

Once you reach age 70½, you are generally required to start taking RMDs from traditional IRAs and employer sponsored retirement plans by the end of the year–for most individuals.

Note: Absent new legislation from Congress, 2014 was the final year that permitted qualified charitable contributions (QCDs) from an IRA directly to a qualified charity if you were 70½ or older. We continue to monitor this space to see if Congress decides to revisit QCDs before the end of the year.

Are there charitable gifts you would like to make before year-end?

Cash gifts are simple, but gifts of appreciated securities might save more tax. Don’t forget to obtain a written acknowledgement from the charity to substantiate gifts above $250.

Have you considered the benefits of a donor advised fund (DAF) for larger charitable gifts?

A DAF can often simplify gifting, especially at year-end. Opening a DAF can take a little longer than a personal account, so the sooner you get started, the better.

Are there annual exclusion gifts you would like to make before year-end?

You can gift up to $14,000 (up to $28,000 per married couple) to as many individuals as you want without incurring federal gift tax or utilizing a portion of your gift tax exemption. Keep in mind that gifts to 529 plans or trusts holding life insurance may utilize all or a portion of your exclusion in a given year.

Have you considered important thresholds when planning for income taxes?

There may still be opportunities to plan around income tax thresholds that could result in higher taxes. This might include the relatively new 3.8% Medicare Surtax, phase outs for itemized deductions, and higher tax rates for long-term capital gains and qualified dividends. Planning for trust distributions is especially important as the various thresholds come into play much sooner than they do for individuals.

Have you withheld enough to avoid underpayment penalties for federal income taxes?

Check your federal income tax withholding and estimated quarterly income tax payments to verify you won’t be subject to underpayment penalties for 2015. The IRS safe harbor rules require that individuals pay in at least 90% of their current year income tax liability or 100% (110% above certain income levels) of their prior year liability.

Should you pay property taxes before year-end or wait until early 2016?

For income tax purposes, sometimes it may be beneficial to “double-up” and pay two years’ worth of property taxes in a single year. Don’t forget to watch out for the alternative minimum tax (AMT).

Are there opportunities for harvesting losses or gains in your portfolio?

Harvesting investment losses can be an effective tax savings strategy, especially when you can offset short-term capital gains that would be taxed at higher rates. Also consider whether 2015 is a good year to recognize capital gains in order to utilize any remaining tax-loss carry-forward.

Are you considering participating in your employers deferred compensation plan?

When it comes to making decisions about deferring compensation, your options are numerous, essential to your financial security, complicated, and often irrevocable. Click here to read more about Deferred Compensation.

Did you have an opportunity to read our “Ideas That May Improve Your Finances in 2015”?

If not, we encourage you to check it out. Click here to read Ideas to Improve Your Finances in 2015.

We encourage your feedback and don’t hesitate to contact your Wealth Advisor if you have any questions.