Prepare for a Happy New Year by Reviewing This Year-End Checklist

Thomas Moyer, CFP®
Person writing a checklist on a notebook

Before you know it, you’ll be gathering with family and friends to celebrate the holidays. Amid the shopping and preparations, it’s important to stop and take stock of your financial position heading into the new year.

Below are five items to consider before the end of the year – all of which may help you to maximize retirement plan contributions, distributions, charitable contributions and tax deductions, and will also give you a better understanding of your fiscal health.

1. Retirement plan contributions.

Have you taken advantage of your retirement plans to defer current income tax and build your retirement nest egg? Have you maximized any company match? If you are age 50 or older, have you made catch-up contributions?

Do not leave money on the table, especially if it is from your employer. Determine the maximum employer match and consider increasing your 401(k) contribution accordingly to optimize your retirement benefit.

If you are age 50 or older, you can likely make catch-up contributions of up to $6,000 to your 401(k), 403(b), or employer-sponsored retirement plan. Your company’s benefits coordinator can confirm the ability to do so, and your financial advisor can help you facilitate these additional contributions.

2. Required minimum distributions.

If you are age 70 ½ or older, have you completed your mandatory distribution for the calendar year? If you have not, you could face penalties equal to 50% of the amount required for annual withdrawal.

Your IRA plan’s custodian must provide written notification of the required distribution amount for the account. But if you have five separate IRA accounts from five different plan vendors, for example, it may be difficult to keep track of those notifications. Short of consolidating your multiple IRA accounts, you may want to create a reminder for yourself to stay on top of these accounts and ensure you make the required withdrawal(s) before the December 31, 2018 deadline.

If you have charitable giving in mind as part of your distribution, read on to potentially cross two items off your checklist.

3. Charitable contributions.

Do you have any appreciated securities (e.g., stock, bonds, mutual funds) that you would like to donate to charity? Doing so may help to lower your taxable income, and also help one or more worthy causes.

You still have time to transfer appreciated securities to a charitable organization, which may also transfer capital gains liability and further decrease your tax liability.

In accordance with checklist item #2, if you are age 70 ½ or older, you may choose to use a portion of your required minimum distribution as a direct transfer to a charitable entity and exclude that income from your tax return. The maximum amount to be transferred to a charity is $100,000 per year.

Read our article, New Tax Law, New Approach for Charitable Giving?, for additional charitable-giving considerations.

4. Capital losses.

Do you have any under-performing investments that can be written off to lower your tax liability?

Use this opportunity to declare any capital losses to offset capital gains, or up to $3,000 of ordinary income. Any investment you own in a taxable account that is worth less than what you paid for it initially – including stocks, bonds, investment property, real estate, and other capital assets – is applicable as a write-off against capital gains.

5. Assess your portfolio risk and allocation.

When was the last time you reviewed your entire portfolio to confirm you are still comfortable with the level of diversity and volatility?

Year end is the ideal time to get a clear picture of your complete investment portfolio, review any positive or negative changes, and re-balance your investments where necessary to maintain the desired diversification and risk.

Take the opportunity to conduct a thorough review of your portfolio’s position and performance to determine how it fits with your short- and long-term financial goals.

Consult a professional

Talk to a financial advisor for advice or for help with one or more of these checklist items to maximize your investment returns. He or she may recommend that you speak with your tax professional as well to ensure you minimize your tax liabilities.

Note that this checklist is not meant to be a comprehensive summary of the year-end actions you should take. Rather, these items are among the most common financial matters that get overlooked as the year comes to a close.

Be proactive. Make time to get your financial affairs in order and you’ll be one step closer to ending the year on a high note.

MACRO Consulting Group does not offer tax advice and advises that you consult with an accountant or other tax professional in regard to your personal situation.