7 Smart Year-End Financial Planning Moves

1.Review your income or portfolio strategy

Are you reaching a milestone in your life such as retirement or a change in your circumstances? Has your tolerance for taking risk changed? If so, this may be just the right time to evaluate your approach.

However, let me caution you about making changes based simply on market performance.

One of my goals has always been to remove the emotional component from the investment plan. You know, the one that encourages investors to load up on stocks when the market is soaring or one that prods us to sell when volatility surfaces.

2.Take stock of changes in your life

Review insurance and beneficiaries. Let’s be sure you are adequately covered. At the same time, it’s a good idea to update beneficiaries if the need has arisen.

3.Mind the tax loss deadline

You have until Monday, December 31 to harvest any tax losses and/or offset any capital gains. But be careful. There are distinctions between short- and long-term capital gains, and you must be aware of wash-sale rules (IRS Publication 550) that could disallow a capital loss.

It may be advantageous to time sales in order to maximize tax benefits this year or next. We may also want to book gains and offset any losses.

4.Mutual funds and taxable distributions—be careful

This is best described using an example. If you buy a mutual fund on December 18 and it pays a dividend and capital gain December 21, you will be responsible for paying taxes on the entire yearly distribution, even though you held the fund for just three days. It’s a tax sting that’s best avoided because the net asset value hasn’t changed.

It’s usually a good idea to wait until after the annual distribution to make the purchase.

5.Don't miss the RMD deadline

Required minimum distributions (RMDs) are minimum amounts a retirement plan account owner must withdraw annually, generally starting with the year that he or she reaches 70½ years of age. Some plans may provide exceptions if you are still working.

The first payment can be delayed until April 1 of the year following the year in which you turn 70½. For all subsequent years, including the year in which you were paid the first RMD by April 1, you must take the RMD by December 31.

The RMD rules apply to traditional IRAs, SEP IRAs. Simple IRAs, 401(k), profit-sharing, 403(b), 457(b) or other defined contribution plans. They do not apply to ROTH IRAs.

Don’t miss the deadline or you could be subject to steep penalties.

6.Contribute to a Roth IRA or traditional IRA

A Roth gives you the potential to earn tax-free growth (not just deferred tax-free growth) and allows for federal-tax-free withdrawals if certain requirements are met.

You may also be eligible to contribute to a traditional IRA, and contributions may be fully or partially deductible, depending on your circumstances. Total contributions for both accounts cannot exceed the prescribed limit.

There are income limits, but if you qualify, you may contribute $5,500, or $6,500 if you are 50 or older. In 2019, limits will rise to $6,000 and $7000, respectively.

You can make 2018 IRA contributions until April 15, 2018 (Note: state holidays can impact final date).

7.Wrap up charitable giving

Whether it is cash, stocks or bonds, you can donate to your favorite charity by December 31, potentially offsetting any income.

Did you know that you may qualify for what’s called a “qualified charitable distribution (QCD)” if you are over 70½ years old? A QCD is an otherwise taxable distribution from an IRA or inherited IRA that is paid directly from the IRA to a qualified charity (“End-Of-Year Contribution and Distribution Planning for Tax-Favored Accounts”–Kitces.com).

This becomes even more valuable in light of tax reform as more taxpayers will no longer be able to itemize, and an RMD that is taken, then donated to a charity, may not provide tax benefits.

Given the increase in the standard deduction and limits on state income and property taxes, annual year-end gifts to your favorite charity may not exceed the higher thresholds. Therefore, you may consider giving an annual gift in early January. Coupled with an annual gift next December, you might reap the tax advantages from itemizing in 2019.

You might also consider a donor-advised fund. Once the donation is made, you can generally realize immediate tax benefits, but it is up to the donor when the distribution to a qualified charity may be made.

I hope you’ve found this review to be educational and helpful, but keep in mind that it is not all-encompassing. Once again, before making any decisions that may impact your taxes, please consult with your tax advisor.

Let me emphasize that it is my job to assist you! If you have any questions or would like to discuss any matters, please feel free to give me or any of my team members a call.

Warm Regards,

David R Henderson

This is being provided for informational purposes only and should not be construed as a recommendation to buy or sell any specific securities. Past performance is no guarantee of future results, and all investing involves risk. Index returns shown are not reflective of actual performance nor reflect fees and expenses applicable to investing. One cannot invest directly in an index. DCH Wealth Management, nor any of its members are tax accountants or legal attorneys, and do not provide tax or legal advice. For tax or legal advice, you should consult your tax or legal professional. The views expressed are those of DCH Wealth Management and do not necessarily reflect the views of Mutual Advisors, LLC or any of its affiliates.