Top 10 End of Year Money Moves
Tax Lost Harvesting
2018 has been a year of massive divergences in different asset classes. That means you probably have a mix of gains and losses. Take advantage of those losses in 2018 by selling before year end
Watch out for surprise taxes from your mutual funds
If you are not considering step 1, your mutual funds probably are. Be careful about any large capital gain distributions. Mutual funds typically distribute these in the last quarter of the year. They announce them prior, so you can decide what is best for you. You could be at a loss in the fund and still get taxed for a gain which is the worst-case scenario. This tip does not apply if you own the fund in your qualified retirement accounts like 401(k) and IRA.
Talk to your tax advisor about the new tax code if you haven’t already
Come January it is usually too late to do anything tax wise for the previous year. Your accountant might be a little busy up to October 15th (extension deadline) but from October through December it is their calm before the storm and a great time to do some planning.
Check your savings rate
If you are in the accumulation phase of life, it is a good time to measure your progress of the year. How much of your income did you plan to save this year when you set your goals? Are you on track to make your goal? There is still enough time to get back on track if not.
Grade your finances
To add to tip 4, look further than just what you have saved. Did you reach other financial goals you had planned on? Did your overall debt reduce? Are you staying within budget? Just like a CFO reports on a company’s important financial metrics every quarter, you should do the same for your family. Some ideas to track: Emergency Fund Ratio: Divided cash in the bank by your monthly expenses, you should have at least 3-6 months on average. Debt Limit Ratio: Divide your monthly non-mortgage debt payments like credit cards and student loans by your net income (after taxes), this should be less than 20%.
Plan for upcoming expenses
The end of the year tends to be an expense time for all of us. Start putting some money aside now to help smooth out the gift shopping and expensive holiday meals.
Consider a Roth Conversion
Roth IRA conversions allow you to take a portion of pre-tax investments and move them into a tax-free Roth. You pay taxes in the year that you do the conversion. This can get tricky and it is best to speak to your financial advisor and/or tax advisor to see if this is a good year for you to do it.
Check your asset allocation
Most advisors will agree that rebalancing your portfolio is prudent and helps contribute to long term success. The end of the year is a good time to consider what positions should be trimmed and which should be added to.
Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs. Rebalancing and Asset Allocation do not assure a profit or protect against a loss.
Take your Required Minimum Distribution (RMD)
If you turned 70 ½ this year, you now must take an RMD each year from your pre-tax retirement accounts. The IRS publishes the rate each year and it increase each year you get older. The first year you have until April 1st of the following year but every year thereafter by December 31st. If you do not take the RMD it is a huge 50% tax penalty on the amount you were supposed to take.
Review your insurances
Make sure you have adequate coverage in all the risk areas. Life, health, disability, long-term care, and homeowner’s insurance are all areas you should review. It is a good time to prepare for life changes. For example, if you are having a baby next year, you might want to consider increasing your life insurance amount.
Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.