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End of Year Checklist: 7 To-Do Items Before December 31st

This post comes from Per Stirling Financial Advisor, Angela Epley, CFP®.

December can feel like the busiest month of the year, but a little planning and preparation can do wonders for lifting worries to make more room for merriment and cheer. Make sure you and your financial advisor work together to check these items off your to-do list so you can focus on what matters most: quality time with loved ones, and reflecting on a year well spent.

  1. Fund retirement accounts with contribution deadlines of 12/31/15. If your employer offers a 401(k) plan, or if you’re self-employed and funding an individual 401(k) or SEP IRA, make sure to top those off before the end of the month to make the most of these tax-advantaged accounts. (Traditional and Roth IRAs can accept 2015 contributions as late as 04/15/16). Maximum 2015 contribution limits for these accounts are:
    1. 401(k): $18,000 if you’re 49 or younger, $24,000 for ages 50+.
    2. Individual 401(k) or SEP IRA: up to 25% of self-employment income, up to a maximum of $53,000.
  2. Take your IRA RMDs (required minimum distributions) by 12/31/15. If you’re 70 ½ or older with multiple retirement accounts, you may have to individually calculate the RMD from each account and take it no later than the end of the year. Your financial advisor can assist with the calculation, which is important because the IRS can assess a 50% penalty on any shortfall if you do not take the necessary amount. Remember: even younger beneficiaries of inherited IRAs may be subject to RMDs in those accounts, so do your due diligence before the deadline.
  3. Think about doing a Roth conversion. If your income in 2016 is expected to be higher than your 2015 income, this may be an opportune time to do a Roth conversion. While it’s still a taxable event, paying taxes while you’re in a lower tax bracket today could be more cost-effective when you consider assets in a Roth both grow & are withdrawn tax-free.
  4. Get the most value from your health expenses. If you have access to a flexible spending account (FSA), endeavor to drain that account with eligible spending if your FSA is a “use it or lose it” type of plan. Or, if you have a health savings account (HSA), maximize this tax-advantaged account with a 2015 contribution ($3,350 for individuals, $6,650 for families) to claim a deduction and start putting those funds to work via investing. Also, if 2015 has been an unusually high year for medical expenses, check with your tax professional to see whether they are deductible: generally, medical expenses which exceed 10% of your adjusted gross income (AGI), or 7.5% if you’re age 65 or older, can be deductible.
  5. Compare standard deductions vs itemized deductions for the year. The standard deduction is more straightforward to work with ($6,300 for individuals and $12,600 if you are married and file jointly), but itemizing may lead to a lower tax bill if you can claim a larger amount of itemized deductions (ex: work-related expenses, mortgage interest, charitable donations, etc.). Depending on whether you anticipate a higher or lower tax liability for 2015 or 2016, choosing when to claim deductions can be a powerful strategy for keeping tax bills as low as possible.
  6. Harvest portfolio losses. Whether it’s time to jettison a position with poor performance, or part of your regular rebalancing strategy, the end of the year is a great time to ask your financial advisor if there are opportunities to harvest capital losses to offset any gains or ordinary income for your 2015 taxes.
  7. Consider charitable donations to fulfill personal intentions – as well as part of your overall tax strategy. There are many ways to make charitable donations, whether you’re giving cash, material items, or highly appreciated stock – and each method and type have their own unique rules and advantages. This is one arena where your financial advisor and tax professional can give the best input, as the right kind of charitable donation may not only lower your tax liability for 2015, but can also help rebalance your portfolio to ensure you enter the new year with your target asset allocation.

It’s easier to turn up the joy and tune out the stress of the holiday season when you can complete time-sensitive, year-end items off your checklist.

And from all of us at Per Stirling, we wish you a Happy Holiday and a Prosperous New Year!