As we approach the end of the year, it’s a good time to review your financial plan and take advantage of some last-minute opportunities to lower your 2015 tax bill. Some items require action before December 31st, while others can wait until April 15th of 2016. In either case, it’s important to get started planning and coordinating with your financial advisor. Take a few minutes today to review our last-minute financial planning checklist for 2015:
- Maximize Your Retirement Contributions
The end of the year is a good time to make sure you’re saving enough for retirement. Be sure to maximize your contributions to both your 401(k) and IRAs. In 2015, Traditional and Roth IRAs allow individuals younger than 50 to contribute $5,500 and individuals 50 and older to contribute $6,500. As always, maximizing your contributions to tax-qualified retirement plans will allow you to keep more money sheltered from taxes until you retire.
- Check Your IRA Distributions
If you are 70 ½ or older, you are required to take minimum distributions from your traditional IRA. The year after you turn 70 ½ you will need to take your first RMD by April 1, 2017. After the first year, you’ll need to take your RMD by December 31 each year. Failing to take the required amount triggers a 50% excise tax on the amount you should have withdrawn based on your age, life expectancy, and the amount in the account at the beginning of the year.
- Roll Your Old 401(k) into an IRA
While you’re addressing your retirement accounts, you may want to rollover 401(k) accounts from former employers into an IRA. Most 401(k) plans have limited investment options and high fees that add up over time. By consolidating your 401(k) assets into an IRA, you can take advantage of more investment options and the possibility of lower fees.
- Rebalance Your Portfolio
My clients’ accounts are rebalanced on an annual basis. However, if you have accounts at an outside custodian, they may need to be rebalanced. Especially after the stock market has made strong gains, portfolios may have become overweight in equities, resulting in increased portfolio risk. By rebalancing your accounts, you can reset appropriate risk and diversification of your assets.
- Harvest Your Losses
While rebalancing your portfolio, you may be able to use tax-loss harvesting to reduce your taxes by selling an investment that is trading at a significant loss and replacing it with a similar investment. In doing so, you may reduce your tax bill and invest the savings to compound over time.
- Review Your Insurance Policies
We recommend reviewing your insurance policies at least once per year to make sure your loved ones are protected in the event of your death. It’s also important to ensure you have adequate disability insurance to protect your income in the event of an illness or injury. If you’ve had any major life changes, like the birth of a child or significant income changes in the past year, your insurance needs may have changed.
- Think About Long-Term Care Insurance
If you’re going to be seeing your parents or other elders during the holidays, it may be a good time to start discussing long-term care insurance. Long-term care coverage for older parents is one area often overlooked, even by many financial professionals. If your parents do not have adequate insurance, the cost of their care could put significant strain on your finances. By addressing the situation early, both generations can feel more secure and prepared.
- Start a 529 Plan
If there are children in your family, starting a 529 savings plan can be an excellent way to jumpstart their college savings and give a thoughtful holiday gift. It’s easy to set up a plan and each individual can save up to $14,000 per year, per child. In some cases, you may be able to pre-fund up to $70,000 as a one time payment.
- Pre-Pay Expenses
If you are seeking a way to lower your tax bill and have the funds to make additional payments, consider pre-paying your mortgage, tuition, or taxes. By incurring these expenses in 2015, you may position yourself for a larger tax return in 2016.
- Make a Tax-Deductible Charitable Contribution
December may mark the giving season for more than one reason. While the holiday spirit motivates us to help others, so do looming tax bills. By making a charitable contribution before December 31st, you may be able to lower your total tax bill for 2015. It can be especially advantageous to donate appreciated securities to avoid paying taxes on the gains.
While this time of year may be busy, addressing these financial opportunities now can set you up for success in 2016 and beyond. As always, it’s important to work with a qualified financial professional who understands your specific situation before making changes to your financial plan. At Engaging Women in Wealth, we are happy to help answer your questions and offer advice. Do you have a question about something on this checklist? Contact me today at 858.756.0004 or email me at [email protected]
About Deb Sims
Deborah Sims is the Principal of Estate Management Group, a wealth management and financial services firm offering comprehensive and customized strategies to help her clients manage their assets and feel confident in their future. Her mission is to serve as her clients’ most trusted wealth advisor through professional knowledge, integrity, and personalized wealth management services. Based in San Diego, California, Deb’s team has offices in Rancho Santa Fe, Old Town, and Del Mar. She invites you to contact her team today to learn more about how they can help you.