Financial Planning

Your Last-Minute Year-End Financial Planning Checklist

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A financial adviser has end-of-December advice for getting your retirement—and the rest of your finances—in order.

With the holiday season upon us, it can be tough to find the time to organize your financial life. While it may seem easier to simply push off your financial planning until next year and bundle it together with all of your other New Year’s resolutions, there are a number of financial moves you can consider making before the end of the year.

Earlier this month, a longtime client and I sat down with her accountant to discuss these deadlines and how they may impact her financial plan. Here are some of items we outlined to keep on the radar as 2015 comes to a close.

Max out company retirement plan contributions. My client’s primary income is derived from her W-2 job. She typically receives an annual bonus on her December paycheck. To minimize her tax liability and bolster her retirement savings, she directed her bonus towards her company 401(k) plan—up to the 2015 calendar year maximum of $18,000. She contacted her human resources representative to make the update for her upcoming payroll and learned she could update her contribution online through the company’s 401(k) website.

Reduce taxable income. In a diversified portfolio you may hold investments that incur losses during the year. Our client may wish to sell a losing position in a taxable account to offset her realized gains. We discussed that she is able to write off up to a maximum of a $3,000 loss. By selling losing positions to realize the loss, we are reducing her taxable income for the 2015 tax year.

Review required minimum distributions. Although she is still in her early forties, our client must take a required minimum distribution (RMD) from the inherited IRA (also referred to as a “stretch IRA”) that she received when her mother died. To avoid costly penalties, she must take an RMD from her account every year before December 31. Each year she uses the net distribution, after tax withholdings, for a family holiday trip.

Do a Roth IRA conversion. Our client’s income exceeds the limit enabling her to contribute directly to a Roth IRA, but she still wants tax-free investment growth for her retirement. We can create this opportunity by first contributing to her non-deductible traditional IRA and then converting the funds to her Roth IRA before the end of the year.

Defer and accelerate business expenses. Our client also has a small side business that she runs in the evenings. Following guidance from her CPA, she may defer income while accelerating expenses for the remainder of the year. This is a common strategy employed by business owners at year-end to limit their tax liability.

Review estate plans. Last year my client met with our estate planning attorney to create her estate plan, which included her living trust, will, and health care power of attorney. At our year end meeting, we discussed if any life changes required her to update her estate plan. In addition, we conducted a beneficiary review of all of her accounts to ensure there are no changes or updates needed. Previously, she realized one of her accounts still had her ex-husband listed as a beneficiary. She wanted that changed immediately.

Prepare charitable donations and planned giving. We discussed with her CPA that there are tax benefits of gifting cash, or other assets, to charity. We concluded that for the 2015 calendar year she and her family do not have any additional planned gifting to individuals, but that she would make charitable contributions in December to minimize her taxes.

Review health insurance and your health savings account. After maxing out her 401(k) plan, my client also decided to contribute the maximum to her health savings account (HSA) as another way to minimize her tax liability. She took the time to meet with her health insurance agent during her company’s annual enrollment to review her health insurance plan.

Check your flexible spending balance. Because her employer-provided dependent care flexible spending account (FSA) does not allow for a balance carryover into 2016, my client would forfeit unused funds. Fortunately, she shared that she already used the full amount in 2015 towards childcare expenses.

Start thinking about next year. My client, her accountant, and I wrapped up our year-end planning and scheduled a meeting for 2016 to revisit her goals and monitor her progress. My client shared that improving her retirement readiness was her primary objective for 2016. The New Year is a perfect time to develop a holistic plan today that can help set you up for a secure retirement tomorrow.

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Joe O’Boyle is a financial adviser and retirement coach with Voya Financial Advisors. Based in Beverly Hills, Calif., O’Boyle provides personalized, full service financial and retirement planning to individual and corporate clients. O’Boyle focuses on the entertainment, legal and medical industries, with a particular interest in educating Gen Xers and Millennials about the benefits of early retirement planning.

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