Stone Pine’s Top 8 Year-End Planning Tips

We have officially entered the home stretch of 2016.  Before this year becomes history, there are a number of items to consider to make sure you take full advantage of planning opportunities while avoiding costly mistakes.

Here is our list of the top 8 things to consider:

1) Capture Tax-Losses:  This is something we look to do every year for our clients.  Unfortunately, not all investments in a portfolio will go up in value in any given year.  With an after-tax account you can use this to your advantage by selling any investments at a loss and using this as a write-off or to offset other gains. A great strategy is to sell a fund at a loss and immediately buy a very similar investment so that you keep your allocation virtually unchanged while getting the tax benefit.

2) Additional 401(k) Contributions:  You have till Dec 31st to maximize or make additional contributions to your retirement plans at work.  Now is a great time to adjust your contribution % to get some extra money into the accounts before year-end.  Pre-tax contributions will reduce your taxable income for 2016.

3) Roth IRA Conversion:  Now is the time to evaluate your income and tax bracket for 2016. If your income is lower than usual, or if there is additional room within your existing tax bracket, it can potentially be a good strategy to do a small Roth Conversion.  This will help build up some tax-free income for down the road.

4) Tax-Savvy Distributions from Retirement Accounts:  If you are planning on taking a larger than usual distribution from your retirement account, you should evaluate the tax impact and consider whether it makes sense to make the distribution over two tax years.  i.e. if you need to withdraw $30,000 for a kitchen renovation, you could withdraw $15,000 at the end of Dec. and another $15,000 in the beginning of January.  Accordingly half of the total distribution will be counted as income for 2016 and the other half for 2017.

Additionally those above the age of 70.5 or those that are the owner of an Inherited Retirement Account want to confirm that they have met their Required Distribution for 2016.  

5) 529 Education Contribution:  PA residents receive a state tax deduction on contributions to any 529 account.  529’s are a very tax-friendly way to set aside funds for college.

6) Charitable Donations and Gifting:  If you itemize your deductions you can generally receive a write-off on up to 50% of your donations.    Gifts of up to $14,000 per recipient (28,000 from a couple) are tax-free and not recorded for tax purposes.  This can be an excellent way to help children with a home purchase, paying off student loans or getting a head start on investing for the future.

7) Refinancing your Mortgage:  Although mortgage rates have recently ticked up, they remain at historically very low levels.  Depending on your current interest rate, it may be an excellent time evaluate the merits of refinancing.  Using a line of credit on your home can also be a very inexpensive way to consolidate other debt.

8) Saving and Expense Planning for 2017:  Last, but certainly not least, now is an excellent time to sit down and make plans for 2017.  What changes do you want to make to your savings or distribution rate and what adjustments can you make to your expenses?  Are there any foreseen one-time items/events coming up that should be planned for?

Take the time to come up with a simple game plan (or let us help!) and hit the ground running in 2017.