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5 Key Financial Items to Check Before Year End

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For pilots, the pre-flight checklist is 100% mandatory. To be sure everything is in working order before leaving the ground, pilot and co-pilot work as a team. Together, they walk through each item on the checklist and verbally verify that every step has been completed. “Landing gear.” Check. “Flaps and slats.” Check. “Spoilers.” Check. “Autobrakes.” Check. Each of these items is carefully checked and crosschecked to keep the plane—and everyone onboard—safe and sound from takeoff to landing.

From a financial perspective, a detailed pre-flight checklist is just as important.

It’s all too easy to focus on the things that matter least (like the ups and downs of the stock market) and neglect to pay attention to the things that can really make the difference in making sure you reach the ideal destination: a secure, comfortable future and the financial confidence to live your ideal life.

As we prepare to take on a new year, now is the perfect time to ask: Have you completed your pre-flight checklist? If you’re not 100% sure—or you’re not quite sure what should be on that checklist in the first place—here are 5 key items you should check and crosscheck before takeoff on December 31:

1. Is your RMD complete?

If you’re over 70½, you must take your Required Minimum Distribution from your qualified accounts by December 31. While that may sound easy, it you have multiple accounts, it isn’t necessarily so. Remember that you must calculate the correct RMD for the sum total of all accounts (based on 12/31/17) as well as pay the appropriate taxes on the distribution amount. If your calculation is off, you may be subject to one of the largest penalties in the tax code: a whopping 50% of the deficient amount. That means that if you took $20,000 in distributions instead of the required $40,000, you would end up paying an extra $10,000 in penalties. It’s no wonder this is number one on your checklist! Remember that if you are charitably inclined, a Qualified Charitable Distribution (QCD) is an important tax strategy (especially under the new tax law) that can help turn your RMD into a tax benefit. To learn more about this strategy, see my blog post, Do you give to charity? Here’s how to make every dollar count under the new Tax Law.

2. Have you talked to your financial advisor?

Life happens. But because life is busy for us all, it’s easy to forget to tell your financial advisor about changes in your life. Big or little, they could have a significant impact on your wealth management and investment strategies. A new child or grandchild could mean the need for a new 529 account. Additional income may mean you haven’t withheld enough income tax for the year. Due to unexpected expenses or financial “windfalls,” you may be “underfunded” or “overfunded” for your financial goals—a shift that may require adjustments to your plan or investment strategy.  We find that the most rewarding client relationships are with people who meet with our team regularly to discuss the changes in their lives and work with us to explore strategies that support those changes. Your advisor can help you save taxes, manage your investments, and build a confident plan—but we can’t do it without your input!

3. Have you applied tax-loss or tax-gain harvesting?

Gain/Loss harvesting offers a handful of opportunities, especially when it comes to tax mitigation. If there are positions in your taxable accounts that have unrealized losses, you may want to harvest these to offset current or future realized gains. If you find yourself in a low tax bracket, you may even be able to “capture” gains at a 0% tax bracket! If there are IRA accounts that have gone down in value, this may be an opportune time to complete a full or partial Roth conversion—and pay taxes on the amount of conversion when prices are low. This strategy can also be used to “fill up” lower tax brackets; if you need a strategy to qualify for the new Qualified Business Income (QBI) deduction, you may be able to accelerate losses or defer gains to put you in the right income bracket. It’s also important to remember that if you’re planning to purchase a mutual fund in a taxable account, waiting until afterthe fund’s year-end distributions are paid out (generally in mid-December) could reduce your taxable income and give you more shares for every dollar you invest. These strategies can be complex, so be sure to work with a qualified financial or tax advisor to identify the ones that are most appropriate for you.

Related: The 9 Best Year-End Money Moves

Related: 6 Smart Year-End Tax-Saving Money Moves

4. Have you looked forward to manage liquidity?

Since mutual fund distributions generally occur at year-end and Required Minimum Distributions must be satisfied, many portfolios will have additional cash. This makes year-end an opportune time to plan for anticipated expenses and upcoming liquidity needs. One way to manage liquidity is to “eat your principal” now, keeping two years of distributions in your “short-term portfolio” and using year-end distributions to replenish your “short-term” portfolio. This can be a great way to gain the safety of a two-year “bucket” of assets, while giving your long-term portfolio the ability to withstand any near-term market volatility. To learn more about this approach, read my blog post Retirement may be the best time to “eat your principal”. And, of course, get guidance from a trusted financial advisor before putting any strategy into practice!

5. Have you covered the basics?

Your financial life is about much more than simply your portfolio balance. The end of the year is a good time to be sure you’ve taken care of the details that make up your holistic wealth management strategy. Is your will up to date? Do you have appropriate insurance based on your current net worth? Have you looked at your cash flow needs in the coming year? Have you completed end-of-year tax planning with your CPA to avoid any penalties and take advantage of tax-savings options? Has your property insurance been updated to include any recent improvements or purchase of high-value items? Every one of these details is vital to growing and protecting your wealth over the long term.

Some of these opportunities to build greater financial strength must be completed before the end of the calendar year, so don’t delay. Start your pre-flight process today to be sure you’re all set to fly by New Year’s Eve. And if you need help, please reach out. As always, our team is here to help!

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