School is back in session; football season is in full swing and while most of Arizona does not experience leaves falling we know we are nearing the end of the year and entering the fall season. What a great time to review that you are on track with your financial goals. This can seem like a daunting task, but I believe that with a checklist anything is achievable.
To simplify this task, I am providing a detailed financial planning checklist. The below guidelines provide additional details on the checklist items.
1. Maximize Retirement Plan Contributions:
If you have a 401(k) or other retirement plan at work, remember to make your allowable 2018 contributions before year-end. In 2018, you can elect to defer up to $18,500 of your compensation to a 401(k). Those aged 50-plus can defer an extra $6,000 for a total of $24,500. Additionally, some plans allow you to make after tax contributions, up to the IRS limit of $55,000.
2. Fund Non-Deductible IRAs & Convert to Roth:
Although your income may be too high to make a direct contribution to a Roth IRA, you can fund a Roth IRA by making a non-deductible IRA contribution and immediately converting it to a Roth IRA.
3. Take Required Minimum Distributions:
If you are 70 ½ you must take your Required Minimum Distribution for 2017. If you have several IRA accounts, you may take the distribution from just one, but the distribution must be calculated on the aggregate of your IRA balances. Please note once an RMD is taken, it is irrevocably distributed (and taxable).
4. Make Deferred Comp Elections:
If applicable you will need to determine ahead of year-end whether to defer a portion of your 2018 compensation. Benefits of deferring include possible tax savings and the opportunity to grow assets at a potentially higher rate of return. As with any investment decision, it is important to weigh out the benefits of deferring with your liquidity needs, time horizon and lifestyle choices. Additionally, you will be required to decide on a distribution election at the time of selection.
5. Use up Flexible Saving Account (FSA) Money:
Time is running out to spend down the balance in you FSA plan. The IRS allows you to carry over $500 into next year. Anything above and beyond this amount will be lost. You have until December 31st to submit all claims.
6. Make Charitable Contributions:
All charitable contributions must be made prior to December 31st to be taken as a deduction on this year’s tax return. If you do intend to make gifts, this should be considered along with a review of your portfolio as you may have highly appreciated stock that can be used for additional leverage on your gift. If you do intend to make a gift for 2018, we encourage you to do so by December 1st.
7. Complete Annual Exclusion Gifts:
In 2018, you can gift $15,000 person ($30,000 per couple, if the election is made to split gifts) to any individual. You should continue to use this annual exemption to help transfer assets and reduce your taxable estate. Please keep in mind contributions to 529 plans are considered gifts as are premiums paid on life insurance policies owned in an Irrevocable Life Insurance Trust. The current lifetime gift exemption is $11,200,000 in 2018 (double from that in 2017).
8. Fund 529 Plans:
If you plan to contribute to a 529 account this year, be sure to do so by December 31st to take advantage of annual gift exclusions and to qualify for any state tax deductions on your 2018 taxes. If you pay for college directly to the institution, your payment is not considered a gift and there is no limitation on your contributions. (Please remember contributions to 529 plans are considered gifts)
9. Review Estate Planning Documents:
Maybe you don’t have an estate plan, then now is a good time to get one in place. Without an estate plan, you and your property may end up in a court-supervised guardianship if you become incapacitated, as well as possibly end up in probate court once you die. Perhaps more concerning, if you don’t have a will, the state where you live at the time of your death could essentially create one for you regardless of your desires. If you do have an estate plan in place, it is a good time to review with your attorney in case anything has changed.
10. Review Beneficiary Designations/Communicate with Beneficiaries:
Year-end is a good time to review and update all of your beneficiary designations for your retirement accounts and life insurance policies.
11. Analyze Taxable Accounts for Tax-Loss Harvesting Opportunities:
There may be opportunities in your portfolio to sell out of a down position to book the tax loss. These losses can be used to offset up to $3,000 of ordinary income each year as well as an unlimited amount of capital gains. These losses can also be carried forward to future tax years. When using this strategy, make sure you do not violate the “wash sale” tax rules.
12. Consider Roth IRA Conversion:
Anyone, regardless of income, is now eligible to convert a Traditional IRA to a Roth IRA. The Roth IRA carries significant income tax advantages for both you and your beneficiaries, especially if the conversion is done with reduced asset levels. Please consult with your accountant to discuss potential taxes that could be owed in the same year as the Roth conversion.
13. Review Income Tax Projections:
Year-end is a good time to meet with your accountant to review projections for the year and determine your expected tax status. Consider the following reasons why you may want to review your tax plan now: your living situation may have changed, you want to start saving money now, you still have time to qualify for 2018 tax deductions and credits. Please be sure to consult with your accountant on this.
14. Request Annual Credit Report:
We recommend that you review a full credit report annually to make sure there are no surprises. You are allowed one free copy of your credit report each year. To request, go to https://www.annualcreditreport.com/index.action. For those of you who have not done so already, you may want to consider signing up for a Credit Monitoring service.
This checklist is just one step in ensuring you on track with your financial goals. It is also important to take this time to meet with your financial adviser for a quarterly/year-end financial plan review.