When I thought about this post I looked back at a post written about a year ago cleverly titled 7 Year-End 2013 Financial Planning Tips. The year-end 2014 version isn’t radically different but it’s also not the same either.
Here are 8 year-end financial planning tips for 2014 that you might consider:
Consider appreciated investments for charitable giving
This was a good idea last year and in fact always has been. Many organizations have the capability to accept shares of individual stocks, ETFs, mutual funds, closed-end funds and other investment vehicles. The advantage to you as the donor is that you receive a charitable deduction equal to the fair market value of the security on the date of the completed transfer to the charity. Additionally you will not owe any tax on the gains in the investment unlike if you were to sell it.
This does not work with investments showing a loss since purchase and of course is not applicable for investments held in tax-deferred accounts such as an IRA. I suggest consulting with a financial or tax advisor here.
Match gains and losses in your portfolio
With the stock market having another solid year, though not nearly as good as 2013 was, year-end represents a good time to go through the taxable portion of your investment portfolio to review your gains and losses. This is a sub-set of the rebalancing process discussed below.
Note to the extent that recognized capital losses exceed your recognized gains you can deduct an extra $3,000. Additional losses can be carried over. This is another case where you will want to consult a tax or financial advisor as this can get a bit complex.
Rebalance your portfolio
With several stock market indexes at or near record highs again you could find yourself with a higher allocation to stocks across your portfolio than your financial plan calls for. This is exposing your portfolio to more risk than anticipated. While many of the pundits are calling for continued stock market gains through 2015, they just could be wrong.
When rebalancing take a look at all investment accounts including your 401(k), any IRAs, taxable accounts, etc. Look at all of your investments as a consolidated portfolio. While you are at it this is a good time to check on any changes to the lineup in your company retirement plan. Many companies use the fall open enrollment event to also roll out changes to the 401(k) plan.
Start a self-employed retirement plan
There are a number of retirement plan options for the self-employed. Some such as a Solo 401(k) and pension plan require that you have the plan established prior to the end of the year if you want to make a contribution for 2014. You work too hard not fund a retirement for yourself.
Take your required minimum distributions
If you are one of the many people who need to take a required minimum distribution from a retirement plan account prior to the end of the year you really need to get on this now. The penalties for failing to take the distribution are steep and you will still owe the applicable income taxes on the amount of the distribution.
Use caution when buying mutual funds in taxable accounts
This is always good advice around this time of year, but is especially important this year with many funds making large distributions. Many mutual funds declare distributions near year-end. You want to be careful to wait until after the date of record to buy into a fund in your taxable account in order to avoid receiving a taxable distribution based on a few days of fund ownership. The better path, if possible, is to wait to buy the fund after the distribution has been made. This is not an issue in a tax-deferred account such as an IRA.
Have a family financial meeting
With many families getting together for the holidays this is a great time to hold a family financial meeting. It is especially important for adult children and their parents to be on the same page regarding issues such as the location of the parent’s important documents like their wills and what would happen in the event of a long-term care situation. While life events will happen, preparation and communication among family members before such an event can make dealing with any situation a bit easier.
Get a financial plan in place
What better time of year to get your arms around your financial situation? If you have a financial plan in place review it and perhaps meet with your advisor to make any needed revisions. If you don’t have one then find a qualified fee-only financial advisor to help you. Just like any journey, achieving your financial goals requires a roadmap. Why start the journey without one?
These are just a few year-end financial planning tips. Everyone’s situation is different and this could dictate other year-end financial priorities for you.
The end of the year is a busy time with the holidays, parties, family get-togethers, and the like. Make sure that your finances are in shape for the end of the year and beyond.