Every season has its traditions, and the last quarter of the calendar year is always the time to meet with your advisors to review a number of matters before the year ends, according to The (Hot Springs, AR) Sentinel-Record in “Check this list — twice — before year-end.” All of this should be done with an eye to your long-term financial and personal goals. You can start thinking, planning and scheduling meetings now so you’re not under the gun in the midst of the holidays!
Keep track of your RMDs. Understand the rules on required minimum distributions (RMDs). If applicable and if you have yet to do so, take your 2017 RMD to avoid a 50% penalty on required amounts not taken. An experienced financial professional can help you plan for your RMDs.
Here are a few other RMD-related considerations when speaking with your financial professionals:
- Automate your RMDs so you never miss this important deadline.
- Take your first RMD during the year you reach 70½ or delay it until April 1st of the following year. However, be aware that if you delay and take two distributions in the first year after 70½, your income could go up and this may put you in a higher tax-bracket.
- Qualified charitable distributions permit traditional IRA owners who transfer RMDs to qualified charities to exclude the amount donated from their adjusted gross incomes—up to $100,000.
Tax harvesting. Look at whether you could benefit from tax-loss harvesting. This simply refers to selling a losing investment to offset gains or establish a deduction of up to $3,000. Excess losses also can be carried forward to future years. Here are some things to consider when speaking with your financial and tax professionals about decreasing your tax bill:
- Short-term gains are taxed at a higher marginal rate, so try to reduce those first;
- Don’t upset your long-term investment strategy when harvesting losses; and
- Understand the “wash sale” rules that impact new purchases before and after the sale of a security.
Wash sale. If you sell a security at a loss, then buy another “substantially identical” security within 30 days before or after the sale date, the IRS typically considers this to be a “wash sale” and will disallow the loss deduction. Be sure to work with your financial professional to ensure any wash sales are intentional.
Income and deductions. If you’re at or near the next tax bracket, pay close attention to anything that might bump you up and plan to reduce some taxable income before the end of the year. Chat with your financial professional about some of these ideas:
- Make a donation to a charity. This can benefit a good cause and reduce your taxable income. You also can gift up to $14,000 tax-free to as many people as you want and without needing to file a gift tax return.
- See if it makes sense to accelerate deductions or defer income, which may let you to minimize your current tax liability.
- Some retirement plans also can help you defer taxes. For example, contributing to a traditional 401(k) lets you to pay income tax only when you withdraw money from the plan in the future (when your income and tax rate may be lower or you may have more deductions available to offset the income).
- Analyze your income sources, such as earned income, corporate bonds, municipal bonds, qualified dividends and others, to reduce the overall tax impact.
Changes in life. Your year-end planning should take into consideration changes that have occurred in your life, as well as changes in the lives of close family members. Moves to a new state, divorces, weddings or births are all things that will impact your estate plan. Schedule a time to meet with your estate planning attorney to ensure your estate plan still reflects your wishes for loved ones.
Changes in assets. Have you bought a house since you last updated your estate plan? Did you change jobs? Roll over an old 401(k) into IRA? Any changes in assets should trigger a conversation with your estate planning attorney. After all, the way you own your assets will determine what happens to them after you pass—often superseding any instructions in a will or trust if not properly aligned with your plan. Plan to have a conversation with your estate planning attorney before year-end to ensure everything in your plan is the way you want it and your assets are all aligned with the plan.
At Family Estate Planning Law Group, we know that changes in life and in assets are not infrequent, so we work with all our clients on an ongoing basis to make sure their estate plan works the way they intend when they pass. Whether that’s five, ten, or fifteen years into our relationship with them, we want to ensure their families are cared for the way they wanted at their passing. To accomplish this, we partner with your financial professionals, working together to ensure your retirement and other investment accounts, insurance policies and other assets are owned in the most efficient way for both you and your heirs.
For more information on why assets are so crucial and how we partner with your financial professionals, explore our website and contact us to schedule your consultation today!
Reference: The (Hot Springs AR) Sentinel-Record (October 8, 2016) “Check this list — twice — before year-end”