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Your Year-End Financial Checklist

Seven aspects of your financial life to review as the year draws to a close.

The end of a year makes us think about last-minute things we need to address and good habits we want to start keeping. To that end, here are seven aspects of your financial life to think about as this year leads into the next…

Your investments. Review your approach to investing and make sure it suits your objectives. Look over your portfolio positions and revisit your asset allocation.

Your retirement planning strategy. Does it seem as practical as it did a few years ago? Are you able to max out contributions to IRAs and workplace retirement plans like 401(k)s? Is it time to make catch-up contributions? Finally, consider Roth IRA conversion scenarios, and whether the potential tax-free retirement distributions tomorrow seem worth the taxes you may incur today. Be sure to take your Required Minimum Distribution (RMD) from your traditional IRA(s) by December 31. If you don’t, the IRS will assess a penalty of 50% of the RMD amount on top of the taxes you will already pay on that income. (While you can postpone your very first IRA RMD until April 1, 2015, that forces you into taking two RMDs next year, both taxable events.)1

Your tax situation. How many potential credits and/or deductions can you and your accountant find before the year ends? Have your CPA craft a year-end projection including Alternative Minimum Tax (AMT). The rise in the top marginal tax bracket for 2014 made fewer high-earning executives and business owners subject to the AMT, as their ordinary income tax liabilities grew. That calls for a fresh look at accelerated depreciation, R&D credits, the Work Opportunity Tax Credit, incentive stock options and certain types of tax-advantaged investments.2

Review any sales of appreciated property and both realized and unrealized losses and gains. Take a look back at last year’s loss carry-forwards. If you’ve sold securities, gather up cost-basis information. Look for any transactions that could potentially enhance your circumstances.

Your charitable gifting goals. Plan charitable contributions or contributions to education accounts, and make any desired cash gifts to family members. The annual federal gift tax exclusion is $14,000 per individual for 2014 and 2015, meaning a taxpayer can gift as much as $14,000 to as many individuals as you like in each year without tax consequences. A married couple can gift up to $28,000 tax-free to as many individuals as they prefer. The gifts do count against the lifetime estate tax exemption amount, which climbs to $5.43 million per individual and $10.86 per married couple for 2015.3

You could also gift appreciated stocks to a charity. If you have owned them for more than a year, you can deduct 100% of their fair market value and legally avoid capital gains tax you would normally incur from selling them.4

Besides outright gifts, you can plan other financial moves on behalf of your family – you can create and fund trusts, for example. The end of the year is a good time to review any trusts you have in place.

Your life insurance coverage. Are your policies and beneficiaries up-to-date? Review premium costs, beneficiaries, and any and all life events that may have altered your coverage needs.

Speaking of life events…did you happen to get married or divorced in 2014? Did you move or change jobs? Buy a home or business? Did you lose a family member, or see a severe illness or ailment affect a loved one? Did you reach the point at which Mom or Dad needed assisted living? Was there a new addition to your family this year? Did you receive an inheritance or a gift? All of these circumstances can have a financial impact on your life, and even the way you invest and plan for retirement and wind down your career or business. They are worth discussing with the financial or tax professional you know and trust.

Lastly, did you reach any of these financially important ages in 2014? If so, act accordingly.

Did you turn 70½ this year? If so, you must now take Required Minimum Distributions (RMDs) from your IRA(s).

Did you turn 62 this year? If so, you’re now eligible to apply for Social Security benefits.

Did you turn 59½ this year? If so, you may take IRA distributions without a 10% penalty.

Did you turn 55 this year? If so, and you retired during this year, you may now take distributions from your 401(k) account without penalty.

Did you turn 50 this year? If so, “catch-up” contributions may now be made to IRAs (and certain qualified retirement plans).1,5,6

The end of the year is a key time to review your financial well-being. If you feel you need to address any of the items above, please feel free to give me a call.

Warmest Regards,

april-signature 

Citations.

1 – irs.gov/Retirement-Plans/RMD-Comparison-Chart-%28IRAs-vs.-Defined-Contribution-Plans%29 [4/30/14]

2 – tinyurl.com/o7wqk7z [3/27/14]

3 – forbes.com/sites/ashleaebeling/2014/10/30/irs-announces-2015-estate-and-gift-tax-limits/ [10/30/14]

4 – philanthropy.com/article/Donors-Often-Overlook-Benefits/148561/ [8/29/14]

5 – nolo.com/legal-encyclopedia/getting-retirement-money-early-without-30168.html [12/2/14]

6 – turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/Tax-Tips-After-January-1–2015/INF12070.html [12/2/14]

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Keeping Holiday Spending Under Control

What little steps can you take to keep from getting carried away?

You’ve seen the footage on the news. You’ve been in the middle of it. You’ve stood in the vexing lines. You’ve circled for the elusive parking spots. Holiday shopping can be downright frenzied – and impulsive.

You don’t necessarily need to go to the mall to feel the pressure and the urges – a half-hour with your laptop or tablet can put you in the same frame of mind.

But how do you keep your spending under control, whether in a brick and mortar store or at home? Here are some tips.

Make a plan. Most people do their holiday shopping without one. Set a dollar limit that you can spend per week – and try to spend less than that. As you plan your financial life – and check on your plan every few days – you may feel a little less stressed this holiday season. In fact, you might want to make two budgets – one for shopping, the other for entertaining.

Recognize the hidden costs. Holiday shopping isn’t just a matter of price tags. When you don’t visit brick-and-mortar retailers, you don’t eat at the food court or coffee shop and you don’t spend money for gas. Carpooling to the mall or taking public transit can help you save some cash.

On the other hand, when you shop online, there’s always shipping to consider. It can make what is seemingly a bargain less so. Free or discounted shipping feels like you’re getting a gift.  Online retailers can also be very finicky about returns. Miss a deadline to return something to an online retailer (who hasn’t?) and you may end up paying sizable return fees or just getting stuck with what you purchased.

Counteract those holiday expenses elsewhere in your budget. Maybe you spent a couple hundred more than you anticipated on that flat-screen. To offset that extra spending, pinpoint some areas where you can save elsewhere in your budget. Could you find cheaper auto insurance? Could you eat in more this month? Could you drive less or cancel that gym membership or premium cable subscription?

If you do go overboard, strategize to attack that excess debt. You may want to pay off the smallest debt first, then the next smallest and so forth onto the largest. That’s the debt snowball approach advocated by Dave Ramsey. Or you may want to take the debt stacking approach favored by Suze Orman, whereby you pay down the debt with the highest interest rate first, then the one with the second highest interest rate, and so on.

With the latter method, you can potentially realize greater savings on interest charges, but you lose the accomplishment of quickly erasing a debt. In the debt snowball strategy, you make minimum payments on all your debts (just as in the debt stacking approach), but you devote all your extra cash to the debt with the smallest balance. The upside there is the psychological high of (quickly) paying off a debt; the downside is the lingering, larger interest charges that come with the larger debts.

If you aren’t vigilant, the holiday season could leave you with a “debt hangover,” or contribute to a severe debt load you may be burdened with. According to the Federal Reserve, the average indebted U.S. household suffered with $15,593 in credit card debt in August. That was a 2.36% increase from a year before.1

If you feel like indulging yourself, indulge sensibly. Some people do give themselves holiday gifts, and the same logic applies – whether it is a meal, a motorcycle, or a spa package, don’t break the bank with it.

Lastly, think about setting aside some “holiday money” for 2015. If your finances allow, how about putting $100 or $200 aside for next season? Invested in interest-bearing accounts (or elsewhere), that sum could even grow larger.

 Warmest Regards,

 april-signature

Citations.

1 – nerdwallet.com/blog/credit-card-data/average-credit-card-debt-household/ [11/26/14]