5 Financial Planning Tips For Year EndSubmitted by Castlebar Asset Management on December 18th, 2013
There are less than two weeks left in 2013 and there are several financial planning items you can address before December 31st. Here are 5 recommendations to take a look at down the home stretch.
Rebalance your Portfolio
After stocks have surged 25% this year there is a good chance your portfolio needs to be rebalanced. The end of the year is a great time to revisit your recommended asset allocation. Your asset allocation is the mix or percentage of each asset category you hold to accomplish your goals and objectives. It is important to look at your allocation within asset classes. Your portfolio may be significant overweight small cap stock but underweight international stocks.
Are you thinking about making a gift before year end to your favorite charity? Consider using appreciated securities in your portfolio to make this gift. You are likely holding stocks, mutual funds or other securities with gains from this year’s rally. These securities can be donated to a charity instead of cash as a gift. This can be a tax efficient way to giving if you do it from a taxable account. If you were to sell the appreciated security to make a donation you would still have to pay capital gains tax so donating it directly is more efficient. If are thinking about donating a stock where you have a loss it is better to sell it and then donate the money. You can then use the loss to offset gains. A donor advised fund can be another way to make a charitable gift using appreciated securities.
Take Your Distributions
If you are older than 70 ½, remember to take your required minimum distribution (RMD) from your tax deferred retirement accounts. These are accounts like Traditional IRAs or 401(k)s but not Roth IRAs. You are required to take a minimum distribution from these accounts and it is computed using your prior years account value. Your bank, custodian or mutual fund company will tell you what your distribution amount is or you can calculate it here.
If you have several retirement accounts, you can take your RMD from just one or several of the accounts. It is important to take a distribution because the penalty is steep if you don’t. The penalty for not taking your RMD is 50% of the RMD amount plus the normal income tax on the RMD amount.
Tax Loss Selling
You are probably sitting on some capital gains so you should review your portfolio to see if you have any securities with losses. You are able to sell these securities with a loss to offset some of the capital gains. It is important you offset short term gains with short term losses and long term gains with long term losses.
Review Your 401(k) Plan
Year end is a great time to review your 401(k) plan. During the year if you received a raise make sure you adjust your contribution if you contribute a fixed dollar amount opposed to a percent of your paycheck. It is also a good time to revisit to see if you are contributing enough to receive the full match from your employer. You don’t want to leave free money on the table. Lastly, review your investment options because your plan may add or remove funds this time of year.
With all of these recommendations I suggest you contact your tax or financial advisor to ensure that these are pertinent to your specific situation.
Disclaimer: The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.