Seven aspects of your financial life to review as the year draws to a close.
The end of a year
makes us think about last-minute things we need to address and good
habits we want to start keeping. To that end, here are seven aspects of
your financial life to think about as this year leads into the next...
Your investments. Review
your approach to investing and make sure it suits your objectives. Look
over your portfolio positions and revisit your asset allocation.
Your retirement planning strategy. Does
it seem as practical as it did a few years ago? Are you able to max out
contributions to IRAs and workplace retirement plans like 401(k)s? Is
it time to make catch-up contributions? Finally, consider Roth IRA
conversion scenarios, and whether the potential tax-free retirement
distributions tomorrow seem worth the taxes you may incur today. Be sure
to take your Required Minimum Distribution (RMD) from your traditional
IRA(s) by December 31. If you don't, the IRS will assess a penalty of
50% of the RMD amount on top of the taxes you will already pay on that
income. (While you can postpone your very first IRA RMD until April 1,
2015, that forces you into taking two RMDs next year, both taxable
events.)1
Your tax situation. How
many potential credits and/or deductions can you and your accountant
find before the year ends? Have your CPA craft a year-end projection
including Alternative Minimum Tax (AMT). The rise in the top marginal
tax bracket for 2014 made fewer high-earning executives and business
owners subject to the AMT, as their ordinary income tax liabilities
grew. That calls for a fresh look at accelerated depreciation, R&D
credits, the Work Opportunity Tax Credit, incentive stock options and
certain types of tax-advantaged investments.2
Review any sales
of appreciated property and both realized and unrealized losses and
gains. Take a look back at last year's loss carry-forwards. If you've
sold securities, gather up cost-basis information. Look for any
transactions that could potentially enhance your circumstances.
Your charitable gifting goals. Plan
charitable contributions or contributions to education accounts, and
make any desired cash gifts to family members. The annual federal gift
tax exclusion is $14,000 per individual for 2014 and 2015, meaning a
taxpayer can gift as much as $14,000 to as many individuals as you like
in each year without tax consequences. A married couple can gift up to
$28,000 tax-free to as many individuals as they prefer. The gifts do
count against the lifetime estate tax exemption amount, which climbs to $5.43 million per individual and $10.86 per married couple for 2015.3
You could also gift appreciated stocks to a charity. If
you have owned them for more than a year, you can deduct 100% of their
fair market value and legally avoid capital gains tax you would normally
incur from selling them.4
Besides outright
gifts, you can plan other financial moves on behalf of your family - you
can create and fund trusts, for example. The end of the year is a good time to review any trusts you have in place.
Your life insurance coverage. Are
your policies and beneficiaries up-to-date? Review premium costs,
beneficiaries, and any and all life events that may have altered your
coverage needs.
Speaking of life events...did
you happen to get married or divorced in 2014?Did you move or change
jobs?Buy a home or business? Did you lose a family member, or see a
severe illness or ailment affect a loved one? Did you reach the point at
which Mom or Dad needed assisted living? Was there a new addition to
your family this year? Did you receive an inheritance or a gift? All of
these circumstances can have a financial impact on your life, and even
the way you invest and plan for retirement and wind down your career or
business. They are worth discussing with the financial or tax
professional you know and trust.
Lastly, did you reach any of these financially important ages in 2014? If so, act accordingly.
Did you turn 70½ this year? If so, you must now take Required Minimum Distributions (RMDs) from your IRA(s).
Did you turn 62 this year? If so, you're now eligible to apply for Social Security benefits.
Did you turn 59½ this year? If so, you may take IRA distributions without a 10% penalty.
Did you turn 55 this year? If so, and you retired during this year, you may now take distributions from your 401(k) account without penalty.
Did you turn 50 this year? If so, "catch-up" contributions may now be made to IRAs (and certain qualified retirement plans).1,5,6
The end of the year is a key time to review your financial well-being. If you feel you need to address any of the items above, please feel free to give me a call.
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Citations.
1 - irs.gov/Retirement-Plans/RMD-Comparison-Chart-%28IRAs-vs.-Defined-Contribution-Plans%29 [4/30/14]
2 - tinyurl.com/o7wqk7z [3/27/14]
3 - forbes.com/sites/ashleaebeling/2014/10/30/irs-announces-2015-estate-and-gift-tax-limits/ [10/30/14]
4 - philanthropy.com/article/Donors-Often-Overlook-Benefits/148561/ [8/29/14]
5 - nolo.com/legal-encyclopedia/getting-retirement-money-early-without-30168.html [12/2/14]
6 - turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/Tax-Tips-After-January-1--2015/INF12070.html [12/2/14]
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Sincerely,
Bill Morrissey, CFP® and Tammy Prouty, CFP®
Sound Financial Planning, Inc.
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