End of Year Financial Planning Tips and Strategies
Local Financial Advisor Offers Money-Saving Advice ~
Denver, Colo. – As year-end approaches there’s still time to take action to reduce your 2015 taxes and get your personal finances ready for 2016. Changes in the tax laws as well as new Obamacare provisions make it especially important to act by December 31st to reduce taxes and avoid penalties and fees.
Herb White, CFP®, president and founder of Greenwood Village-based independent insurance and financial firm Life Certain Wealth Strategies provides tips:
1. Maximize Your Retirement Contributions
Are you funding your 401(k) with payroll deductions? In 2015, the maximum 401(k) contribution has been increased to $ 18,000, or $24,000 for those over 50. Even if you can’t save the top amount, try to contribute enough to maximize your employer’s match. If you want to contribute more, talk to your employer about raising your payroll deductions for the rest of the year.
For those with a traditional IRA, the maximum contribution is unchanged from 2014 – $5,500, or $6,500 for those over 50. The same is true for Roth IRA contributions. If you’re concerned that your income is too high to qualify for a Roth contribution, you may consider the “backdoor Roth conversion” where you contribute to a traditional IRA, then convert to a Roth, which is not currently subject to income limitation. Check with your financial advisor to find out if this strategy makes sense for you. You can make a 2015 contribution to your IRA anytime until Tax Day, which this year will be April 18, 2016.
2. Time Your Income, Deductions and Losses
Are you expecting a bonus or commission payment in late 2015? You may want to ask your employer to defer these until early 2016 to keep your taxable income minimized for the current year.
Make certain all of your planned charitable donations and gifts are made by December 31st. If you plan to gift money to family and friends before year-end, you may do so in amounts of up to $14,000 per person without paying the federal gift tax. This is the same federal gift tax limit that was in place in 2014, and it will remain unchanged through the end of 2016.
Are you contributing to a 529 college savings plan? Many states offer tax deductions for 529 contributions. Look into how maximizing your contribution might also cut your state taxes.
Does your taxable portfolio include some losing stocks or mutual funds that you want to sell? The IRS allows a deduction of up to $ 3,000 a year from capital losses, but the sale must be before year-end. Do your losses exceed $3,000? You can use this value to offset capital gains realized for the year or carry forward the additional losses into future years. Finally, if you had losses exceeding $3,000 in previous years, you may be able to claim them in 2015 and future years.
3. Check Your Medical Expenses
Did your family have significant medical expenses in 2015? If your total qualified expenses exceed 10% of your Adjusted Family Income, you can take the amount over 10% as an itemized deduction. (For those over 65 years old, the expense threshold is 7.5% in 2015 and 2016.) Refer to IRS publications to make sure all of your expenses can be deducted. For example, insurance premiums qualify, but cosmetic surgery doesn’t.
4. Don’t Get Hit by Obamacare Penalties
The Affordable Care Act (Obamacare) requires individuals and families to have healthcare insurance. The penalties for not having coverage increased sharply in 2015
Those without healthcare insurance during 2015 face minimum penalties of $325 per adult and, for those in higher tax brackets, as much as 2% of family income. While there are exemptions for these penalties, many will not qualify.
The penalties increase again in 2016, to a minimum of $695 per adult and up to 2.5% of income for high bracket taxpayers. If you want to avoid 2016 penalties, shop now for a qualified insurance plan.
5. Avoid 401(k) and IRA Minimum Distribution Penalties
If you turned 70½ in 2015 and have retirement plans funded with pre-tax contributions, you’ll need to start taking Required Minimum Distributions, or RMDs. (Roth plans, funded with after-tax money, don’t require RMDs.) Not taking a distribution or missing the distribution deadline will result in a 50% tax on the required RMD. Partial distributions are also penalized. As of mid-November, according to a Fidelity review of more than 800,000 in-house accounts, 67 percent of IRA holders required to take distributions have not met their full requirement, and in 54 percent of the accounts, zero distributions have yet been taken.
RMDs are based on your age and total account value on December 31st each year. Take advantage of on-line calculators or contact a financial advisor for assistance calculating your withdraw.
6. Same-Sex Married Couples Should Update their Tax and Financial Plans
The Supreme Court’s 2015 same-sex marriage ruling has changed the tax and financial landscape for same-sex couples. Social security benefits, income tax breaks, estate tax changes, and FMLA (Family and Medical Leave Act) eligibility are some of the affected areas. Consult with your financial advisor to see how you can take advantage of your new status to reduce your taxes and increase your financial security.
About Herb White, CFP®, President of Life Certain Wealth Strategies
Herb White, CFP® is the founder and president of Life Certain Wealth Strategies, a Greenwood Village-based independent insurance and financial firm dedicated to helping individuals achieve their financial goals for retirement. In addition to being a CERTIFIED FINANCIAL PLANNER™ with more than 15 years of experience in the financial services industry, White also holds the designations of Chartered Life Underwriter® (CLU®), Chartered Financial Consultant® (ChFC®) and Registered Financial Consultant (RFC®). White holds his Series 4, 7, 24, 63 and 65 securities licenses and is life and health insurance licensed. He is a member of Ed Slott’s Elite IRA Advisor GroupSM, the Financial Planning Association® (FPA®) and the National Association of Insurance and Financial Advisors (NAIFA). For more information about Herb White, CFP® and Life Certain Wealth Strategies, please visit www.LifeCertain.com or call (303) 793-3999.
Securities and Investment Advisory Services offered through Woodbury Financial Services, Inc. Member FINRA, SIPC and Registered Investment Advisor. Insurance offered through Life Certain Wealth Strategies and is not affiliated with Woodbury Financial Services, Inc. are not affiliated entities. Neither Woodbury Financial Services, Inc., nor its registered representatives or employees, provide tax or legal advice. As with all matters of a tax or legal nature, you should consult with your tax or legal counsel for advice. The views expressed are not the opinion of Woodbury Financial and should not be construed directly or indirectly, as an offer to buy or sell any securities mentioned herein.