Objective information about retirement, financial planning and investments


8 Year-End Financial Planning Tips for 2014


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 situationWhile 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?

If you are more of a do-it-yourselfer, check out an online service like Personal Capitalor purchase the latest version of Quicken.

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.  

Time Well Spent: Choosing an IRA or a Restaurant?


Actually both can be a good use of your time in the right amount.  Living near a major city like Chicago, the dining choices are innumerable.  The worst that can happen is you have a bad meal should you choose the wrong restaurant.  Contrast this with choosing the wrong place for your IRA account and/or the wrong investments and you may end up with less in retirement than you had hoped for.

According to a recent survey by TIAA-CREF:

  •  Americans are more likely to spend two hours selecting a restaurant for a special occasion (25 percent), buying a flat screen TV (21 percent) or tablet computer (16 percent) than on planning an IRA investment (15 percent).
  • Fewer than one in five (17 percent) Americans are contributing to an IRA – a decline from 22 percent in 2012 – potentially missing tax and savings benefits.
  • What’s more, fewer than half (47 percent) of those not contributing say they would consider an IRA, down from 57 percent in 2013.
  • Even among those who already have an IRA, more than half (55 percent) said they spent an hour or less planning for the investment.



According to the TIAA-CREF survey:

“An IRA can be an incredibly powerful savings tool that can boost retirement security and offer immediate tax and savings benefits. IRAs can also serve as a valuable supplement to an employer-sponsored plan and help fund a first home or education,” said Doug Chittenden, Executive Vice President, Individual Business at TIAA-CREF. 

Despite these benefits, the survey found that fewer than one in five (17 percent) of those surveyed currently contribute to an IRA, a decline from 22 percent in 2012. 

The survey reveals that the number of Americans who would consider an IRA as part of their retirement strategy has fallen sharply since 2013. Fewer than half (47 percent) of those not contributing say they would consider an IRA, down from 57 percent in 2013. 

It is possible that a lack of understanding is responsible for low IRA contribution levels. More than one-third (35 percent) of respondents do not understand what an IRA is or the difference between an IRA and an employer-sponsored plan. This percentage is even higher among the Generation Y (age 18-34) population surveyed (45 percent). 

“More and more people are unaware of the ultimate value an IRA can have in a building a stable and secure retirement,” said Chittenden. “Americans today bear much more responsibility for their retirement savings than previous generations did. There is a pressing need to educate Americans from all age groups and income levels on the long-term retirement benefits that IRAs provide through compounded investment growth and tax savings.” 

Even among those who already have an IRA, more than half (55 percent) said they spent an hour or less planning for the investment. 

Sixty percent of those who are contributing to an IRA also have an employer-sponsored plan such as a 401(k) or 403(b). Among those with both plans, more than half (53 percent) say they contribute to their IRA regardless of whether they have reached the contribution or matching limit of their employer-sponsored plan. This means they could be leaving money on the table if they are diverting money to their IRA before contributing enough to get their employer match. 

How does an IRA fit with my retirement planning strategy? 

TIAA-CREF is absolutely right in that an IRA can be a great tool in your retirement planning strategy.  If someone has access to a 401(k) or similar workplace retirement plan I generally suggest they contribute at least enough to capture any employer match offered.  This is true even if their 401(k) plan is lousy.

Beyond that it makes sense to contribute more than the amount needed to receive the match if your employer’s plan offers a menu of low cost solid investment choices.  Although 401(k) plans receive a lot of bad press, in fact there are many excellent plans out there.  One advantage to investing for retirement via a workplace retirement plan is the salary deferral feature.  This makes regular savings and retirement investing painless.

An IRA can be a great retirement savings vehicle in a number of situations:

  • You don’t have access to a retirement plan via your employer.
  • You have maxed out your contributions to your 401(k) and want to make additional retirement contributions.
  • You are a non-working spouse and your working spouse makes at least income to cover the amount of your contribution.
  • You are self-employed.  Note there are a number of retirement plan options for the self-employed including a Solo 401(k) and SEP-IRA.
  • You are looking to roll over your 401(k) after leaving a job and also possibly to consolidate several old 401(k) plans in one place to make managing these assets a bit easier. 

Considerations in choosing an IRA account 

In a recent post on this blog 3 Considerations When Opening an IRA Account I suggested the following things to consider when opening an IRA account:

When looking at the cost of an account at a particular custodian consider any annual account fees and transaction costs related to the types of investments you are likely to make.  For example:

  • How much is it to trade stocks, closed-end funds, ETFs or other exchange-traded vehicles?
  • Does this custodian offer a large number of mutual funds on a no transaction fee (NTF) basis? 

While researching a good restaurant can take some time and potentially yield some tasty rewards, time spent on finding the right IRA and on retirement planning in general can pay off handsomely down the road.  This can lead to many fine restaurant meals as well.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email. Please check out our resources page as well.  

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3 Considerations When Opening an IRA Account


As we head toward April 15 it is now high IRA season for the major brokerage and financial services firms.   You will undoubtedly see many TV commercials and ads by these firms touting the benefits of opening an IRA with their firm.  Here are 3 things to consider as you evaluate your best IRA account options.

Understanding your retirement

How much will this cost me? 

Some firms may charge a fee just to have the account.  This might be on the order of $25 or $50 annually.  If your balance is relatively low this can be a significant bite.  Sometimes these fees are based on the size of your account balance.

Additionally you will want to understand any and all transaction fees.  This might include trading fees for buying and selling stocks, ETFs, or other exchange-traded investment vehicles.  Certain mutual funds might carry a transaction cost as well.

If you are working with a commission-based financial advisor understand how he or she is compensated.  Will the funds in the IRA account they are advocating carry sales charges or high internal fees to compensate them?

Is this custodian a good fit with my investing needs? 

This runs the gamut.  Certainly the fees mentioned above are part of this.  Beyond this look at how you invest and the vehicles in which you invest.

For example if you use ETFs extensively does this custodian offer any commission-free ETFs?  If so are these the ETFs that you would use?

As an example if you were planning on using Vanguard mutual funds exclusively it might make sense to house your IRA there.  On the other hand if you were looking to use funds from a variety of families perhaps a custodian that is more of a fund supermarket like Schwab or Fidelity is more appropriate for you.

Beyond an IRA account is this custodian a good fit for my needs in terms of other types of accounts such as a taxable brokerage account?  Do they offer the full array of services that I might need?  In my experience having an IRA at one custodian plus other accounts scattered around several other custodians is rarely a good idea.

Should I roll my 401(k) to an IRA or leave in my old employers plan? 

One of the primary reasons that investors open an IRA during the year is to roll their old 401(k) account over when leaving a job.

If you are leaving your employer whether to roll your 401(k) balance over to an IRA, leave it in your old employer’s plan, or roll it to your new employer’s plan (if applicable) is a critical decision.

There are good  reasons to move your account balance to an IRA which could include:

  • Your old employer’s 401(k) plan is lousy (as is your new employer’s if applicable).
  • A desire to consolidate all of your various retirement accounts into a single IRA to make management of your investments easier.
  • Access to a wider selection of quality investment options than might be available via your old employer’s plan.
  • Perhaps you are working with a trusted financial advisor and the rollover with allow them to better integrate this money with your overall investment strategy. 

On the other hand two reasons to consider either leaving your money in your old employer’s plan or rolling it into your new employer’s plan (if applicable):

  • The plan offers a menu of low cost institutional investments that might not be available to you via a rollover IRA.  This is often the case with very large employers with tremendous buying power, but also with smaller plans who use a competent outside investment advisor.
  • Similar to the last bullet, the plan offers specific investment options that you would be unable to match in an IRA. 

An IRA, either Traditional or Roth, is a great vehicle to help you win the retirement gamble.  Before opening an IRA account you need to do your homework just as with any investing decision.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email. Please check out our resources page as well.  

 Photo credit:  Flickr

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