Start Your Year End Financial Planning Now

by Craig Moser on November 16, 2018

New Year’s Eve is still more than a month away.  So why not avoid any last-minute fire drill and start your year end financial planning now?  Do it now while you still have time to increase your retirement savings, and possibly lower your taxable income and avoid tax penalties.  Here are some tips to consider:


Take RMDs

You’re required to begin taking required minimum distribution (RMD) withdrawals from any IRA, Simple IRA, SEP IRA, or retirement plan account once you reach 70 ½.  It’s the least possible amount the IRS requires you to withdraw by December 31st of each year.  RMDs also apply to inherited IRAs and Roth IRAs.

Failure to take your distribution, or not withdrawing enough, means you pay a 50% penalty on the amount not taken.  In addition, the withdrawal amount is included as income and you’re taxed at your normal income rate.


Too Much Money?

Many people attempt to roll their RMD into an IRA or ignore the once-per-year rollover rule.  In most cases, it’s an honest mistake.  However, if you’re in this situation, be aware there’s a 6% penalty assessed on the excess contribution for each year the “disallowed” money remains in your account.


Charitable Contribution

If you’re over 70 ½, using a qualified charitable distribution (QCD) for some or all of your RMD may help reduce your tax liability.  When you make a QCD to a qualified charity, the amount donated is excluded from your taxable income.


Tax Strategies

Review any unrealized gains and losses on taxable account(s) before the year ends.  If you have capital gains, see if there are unrealized losses you can sell to reduce or eliminate the gain.  Also, if you’re looking to purchase a mutual fund with nonqualified money, wait until after capital gains are distributed.  Simple strategies like these can have a significant impact on your taxes.


Pay Taxes Today

Consider funding a Roth IRA and paying taxes today rather than tomorrow.  Contributions to a Roth IRA are made with after tax money, and you can make contributions at any age.  There are no RMDs to consider, and with a few exceptions, withdrawals aren’t taxable.  This allows you to pay today’s known tax rate, which is relatively low, rather than facing an unknown future tax rate.  (You can also consider a conversion, or partial conversion, of your traditional IRA to a Roth IRA.)



Life happens to us all.  If you’ve experienced a marriage, divorce, birth, or death, your family dynamics have changed.  To make sure your beneficiary designations are current and reflect your most recent wishes, it’s a good idea to review beneficiary designation yearly.


Employer Sponsored Retirement Plan

If you have an employer-sponsored, tax deferred retirement plan, at a minimum, consider contributing enough to receive your company’s full match.  Many companies match 50% of your contribution up to 6% of your salary.  That’s basically free money you shouldn’t pass up.



Financial firms let the IRS know about your retirement accounts using forms like the 1099-R and 5498.  Unfortunately, these forms don’t always tell the full story and/or they be inaccurate.  Be sure to protect yourself by keeping your own records.  You should have documentation related to your retirement accounts, including rollovers, QCDs, and RMDs.


Year-End Financial Planning

A little year-end financial planning can be a good habit to develop.  We all know taxes are complicated and the rules/guidelines can change from year to year.  Reaching out to your financial and tax professionals at the end of the year gives you time to prepare and make any needed adjustments before year end.  After all, would you rather have taxes in the rear-view mirror or ahead of you?


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