Six Financial Strategies for Year-End

By Jeffrey Eisenberg, MBA

It’s the time of year when many people think about pulling warmer clothes out of storage, preparing for holiday shopping, and getting business affairs in order. If you’re an investor, you can also benefit from some seasonal chores that will keep your financial goals on track going into 2018. Here are six strategies that are worth your attention.

Capital Gains
If you sold investments during 2017, you’ll be interested to know how well you did (as will the IRS). Start by gathering all buy and sell trade confirmations regarding investments sold from all taxable accounts in order to determine your cost basis. If you have capital gains, you may consider selling unproductive investments at a loss as an offset. You also can apply capital loss carryovers from prior years to offset current year capital gains. An excess capital loss can be used to lower your ordinary income by the amount of the actual total net loss or by $3,000 ($1,500 if married filing separately), whichever is less.

Charitable Contributions and Gifting
Charitable giving feels good during the holidays and also can be financially beneficial. If you donate long-term appreciated securities with unrealized capital gains from a taxable account (rather than paying cash or a check), you can give more while avoiding capital gains taxes; you also can take a deduction for the full fair market value of the securities donated (up to IRS limits) to reduce taxes. Also consider giving amounts up to $14,000 ($28,000 from a married couple) per beneficiary, to children or grandchildren. This amount can be gifted without estate tax complications.

Retirement Accounts
If you can afford it, max out your contributions to your employer-sponsored retirement plan and individual IRA or Roth IRA. The 2017 tax year plan limits:

401(k), 403(b) and 457(b/c) plans: $18,000 ($24,000 if age 50 and above);
SEP IRA: $54,000 (up to 25 percent of compensation);
Self-Employed/SOLO 401(k): $54,000 ($60,000 if age 50 and above) combined employee and employer contributions;
SIMPLE plan: $12,500 ($15,500 if age 50 and above);
Individual IRA: $5,500 ($6,500 if age 50 and above);
Roth IRA: $5,500 ($6,500 if age 50 and above) if you are eligible according to IRS income limits. Contributions are not deductible.

This is also a good time to evaluate whether you have the appropriate retirement plan in place, to maximize annual tax-deferred contributions where they apply.

Health Care Savings Plans – HSA versus FSA
If you have a high-deductible insurance plan, start and max out your contributions to a Healthcare Savings Account (HSA). An HSA is the most advantageous way to save pre-tax for healthcare costs now and during retirement, since it is owned by you, the unused funds roll over year-to-year, grow tax-deferred, and the account moves with you when you change employers or retire. Some plans even allow you to invest in mutual funds, just as with an IRA. HSA withdrawals must be used for qualified healthcare costs.

If you do not have a high-deductible plan, consider a Flexible Spending Account (FSA) if it’s available from your employer. It allows you to contribute pre-tax funds to pay for certain out-of-pocket healthcare costs, but it can not be invested in mutual funds. Check with your employer to confirm the FSA annual contribution deadline. An employer may allow a capped rollover amount of up to $500 for any given year, but it is generally a “use it or lose it” plan, so save only what you require to avoid forfeiting unused funds at year-end.

Required Minimum Distribution (RMD)
If you are age 70 1/2 or older and have not yet taken your RMD for the year from certain retirement funds (or do not know what that number is), contact your financial advisor or custodian. Beginning at age 70 1/2, the IRS requires that you begin taking your RMD from all tax-deferred accounts such as 401(k), 403(b), 457(b/c), individual IRAs, and annuities to avoid any penalties.

Financial Plan Reassessment
If you have not recently reviewed your financial plan, this is a good time to sit down with your advisor and accountant to do so. These meetings should ensure that you stay on track with your long-term retirement goals and objectives. Keep an open mind to new and fresh investment perspectives to make sure you have the right strategy in place, and rebalance your portfolio if needed to avoid sector and allocation drift.

One Last Matter
It helps to create an actionable “tickler” list to track questions you need answered by your advisors and important tasks to accomplish each year at this time, to maximize your financial position and ensure a smoother transition into the new year.

Jeffrey Eisenberg is president and CEO of SecuraWealth Investment Strategies, a Registered Investment Advisor, providing independent fee-only based wealth management services and strategic investment portfolio strategies. SecuraWealth Investment Strategies does not provide legal or tax advice. Please contact your attorney and/or tax advisor regarding any questions you may have specific to your situation. Information contained herein was obtained from sources believed to be reliable, but not guaranteed. Past performance is no guarantee of future results.