Year-End Financial Planning

We've put together a list of financial planning topics for your review.

Health and wellness
Flexible spending accounts. Money in a flexible spending account (FSA) generally must be used by year-end, or it is forfeited. Recently, however, the IRS modified this rule to allow participants to carry over up to $500 of unused funds into the next year. (Your employer must elect to participate in this option; check your plan to see if you can take advantage of this new rule.)

If your employer has not elected the carry-over option, schedule those doctor's appointments and stock up on items that are eligible for flexible spending. If you take action immediately, you may relieve some last-minute headaches, and you won't lose your hard-earned dollars.

Learn when open enrollment is for your benefit plan, and if you're not using an FSA, consider whether setting up an FSA makes sense. If you already use an FSA, assess how much extra you have left in the account (or how much of a deficit you ran), and recalculate your allotment for your next enrollment.

Medicare enrollment. Learn when open enrollment for Medicare starts. For many, this is the only chance to change health and prescription drug coverage for the year.

Retirement planning. Review your retirement plan allocation and contribution elections. If you're not taking full advantage of matching features or potential tax benefits, consider maximizing your contributions. It's always good to reassess whether your allocation remains in line with your objectives.

Recharacterization of Roth IRA rollovers or conversions. If you converted a traditional IRA to a Roth IRA and paid tax on the conversion, mark your calendar to allow plenty of time to meet the deadline for recharacterizing (i.e., undoing) the conversion.

Taxes, taxes, taxes
RMDs. If you're turning 70½, you'll need to devise a strategy for taking required minimum distributions from your traditional IRA and 401(k) plans.

Estimated taxes. Be sure to take potentially large bonuses and a prosperous business year into account when considering your taxes. You may have to file estimated taxes or increase the January payment.

Managing marginal tax brackets. Tax provisions often change. If you are on the edge of a new tax threshold, you may be able to defer or accelerate income or deductions to minimize taxes.

  • The 39.6-percent marginal tax bracket affects taxpayers with taxable incomes in excess of $406,750 (individual), $457,600 (married filing jointly), $432,200 (head of household), and $228,800 (married filing separately).
  • The 20-percent capital gain tax rate applies to those in the 39.6-percent marginal tax bracket.
  • Itemized deductions and personal exemption phase-outs affect those with adjusted gross incomes above $254,200 (individual) and $305,050 (married filing jointly).
  • The 3.8-percent surtax is applied to the lesser of net investment income or the excess of modified adjusted gross income over $200,000 (individual) and $250,000 (married filing jointly).

Too little or too much withholding. Workers with gross earned income of more than $200,000 may have had too little or too much tax withholding. If an employer withheld an additional 0.90-percent tax on an income over $200,000 without regard to a taxpayer's withholding status, it would put the taxpayer at a higher threshold. Another taxpayer may have had too little withholding because of other income from a second job that was unknown to the employer. Employees should plan to take a credit on their returns or pay additional taxes.

Reporting losses on stock sales. Be aware of important deadlines regarding trading date closings. A trade to sell a long position must be executed by the close of the last trading date of the current year. Similarly, a trade to sell a short position must be executed so that it settles by the last trading date of the current year.

Estate planning
To help ensure that your estate plan stays align with your goals and needs, it's important to review and update it on an ongoing basis. If you haven't done so, take time before the end of the year to:

  • Check trust funding
  • Account for any life changes
  • Update beneficiary designations
  • Review trustee and agent appointments
  • Review provisions of powers of attorney and health care directives
  • Prepare for the distribution of personal effects
  • Get a firm understanding of all of your documents

Saving and goal setting
Did you set a savings goals for the current year? Realistically assess how well you've met those goals and think about your goals for the upcoming year.

If you determine that you're off track, let us help you develop and monitor a financial plan. We're happy to review the topics most relevant to your personal situation, so you can better prepare for the year.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.