We’re in the thick of the holiday season, and like most people you’re probably busy with Christmas or Hanukkah shopping, hosting and attending holiday parties and perhaps preparing for a winter vacation. It’s not as much fun, but this should also be a time to tend to end-of-year-financial planning, which is almost always a financially worthwhile endeavor.
With this in mind, here are some tips from Annuity FYI and other financial planners about what to review: Consider checking in with your financial adviser for additional guidance.
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* Review your investment portfolio. Make sure your asset allocation still makes sense. 2017 has been a wonderful year for the stock market. It not only posted a very healthy gain but was among the least volatile years ever. Major overseas equity markets also rebounded crisply. Will the picture change in 2018? Is this a good time to lock in gains and trim profit?
* Review your overall retirement plan. In particular, consider increasing contributions to tax-deferred accounts such as IRAs or 401 (k)s. Baby boomers and Gen Xers who aren’t meeting retirement savings goals should consider getting back on track, even if that means trimming current living expenses. Those 50 and older should consider making catch-up contributions to their IRAs or 401(k) s. At this age, earned income can be reduced by up to $24,000, substantially trimming taxes.
* Harvest investment losses. If you invest in stocks, bonds or mutual funds outside of tax-deferred accounts, you may be able to cut taxes on any investment gains. As an example, while the stock market ultimately fared well in 2016, it nosedived for weeks at the start of the year. Those who sold at losses can offset realized taxable gains on investments with realized capital losses. Tax-loss harvesting must be done by December 31.
* Check your tax withholding if you’re still working. If the amount you’re withholding is materially less than necessary to meet your tax liability, increase it. If it is more, you probably should trim it – savings rates are almost certain to rise in 2017. Regardless, most people are better off boosting their take-home pay.
* Make sure you take your RMDs. Those 70 ½ and older must take required minimum distributions from retirement accounts by December 31. If you don’t, you’ll face a steep penalty, as well as the income tax tab. This also includes clients who may be recipients of inherited IRAs.
* Review your estate plan. Many people falsely believe that creating a will is a one-time event. It isn’t. It’s important to review wills and other estate planning documents at least once a year and consider changes to your health, finances and relationships. Make sure you document a new spouse, children or grandchildren.
* Don’t forget about charitable giving. It’s the right thing to do during the holiday season if you can afford it. If you’re unsure which charity to select, check out GuideStar, which provides data on well over 1 million IRS-recognized tax-exempt organizations, as well as thousands of faith-based organizations. Make sure you choose a qualified organization to reap the tax benefit. Many employers also match charitable contributions.
— Steve Kaufman
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