Consider making year-end financial planning moves

Financial planning is a year-round endeavor, always in fashion. But even though it’s December, there’s still time to make a few moves that could help you with taxes or kick the new year off right. It’s important to consult your accountant for most of these. Why? I don’t give tax advice.

Required minimum distributions

If you’re over 70, chances are you’re familiar with the RMD. Federal law requires you to, when you reach a certain age, withdraw a percentage of your retirement accounts. The starting date used to be 70½. It’s now 72. This applies to all pre-tax accounts, like 401k, IRA, Missouri deferred compensation, etc.

It also applies to inherited retirement accounts, regardless of your age. The rules depend on whether you inherited money under the old or the new law. Too complicated to explain here, but your financial planner or accountant can help.

These withdrawals need to be made by year-end. Normally the “custodian” of your retirement account calculates your RMD and notifies you of the deadline. The custodian is your investment company, 401k provider, bank, credit union or insurance company holding the funds.

Note: no RMDs for Roth accounts. No action needed there.

Selling investments that are down

For the first time in 15 years, we have a bear market. That’s never fun. But you can make lemonade from these lemons in a couple of ways:

First, you can sell investments that have lost money and get a tax deduction. Unfortunately this is capped at $3,000 per household ($1,500 if you’re single). If the loss is more than $3,000, you can claim the excess in future years. You’ve probably heard of capital gains. This is known as a capital loss.

Second, let’s say you have an old mutual fund or stock you’d like to get rid of. But it’s grown so much over time that you’d pay big capital gains tax if you sold it. You could sell other investments that are down to offset this gain. Example: you have old XYZ stock with a $50,000 gain. You have other investments that are down by that much or more. You could sell those investments to generate a $50,000 loss. Then you could sell the XYZ and the two offset. No taxable event.

Paying for college

If you’re helping kids or grandkids pay for college, you might be able to get a tax deduction. It’s always good to save for someone’s education, but on top of that, some types of educational savings accounts offer tax advantages

for money going in and going out.

(Note: I have reason to believe this column has an intergalactic audience, so check the rules in your state).

Advanced stuff: Roth conversions

With this technique, you move money from a pre-tax account to a Roth IRA. You pay income tax on the money you convert. So why do this?

• To have more tax-free money later in retirement.

• To reduce your RMD amounts (since RMDs don’t apply to Roths).

• To leave tax-free Roth money to your beneficiaries, rather than pre-tax money.

Here’s a great scenario: a 65-year-old couple retires early (lucky them). They can Roth convert about $100,000 and stay in the 12 percent tax bracket. So they get this done for about $12,000 in taxes, and they are young enough to see this money grow for many years. If they have children to inherit the funds, all the better.

This is very tricky and expensive territory, so including your accountant here is a must. It’s not for everybody, but it can be very fruitful when it works.

Prepare for tax season

Do you scramble around for tax documents come spring? How about making a folder now, either hard copy or hard drive. You’ll be getting W-2s if you’re an employee. You’ll get 1099s for everything else: Social Security, pensions, independent contractor work, capital gains, interest and dividends, etc.

If you took money out of an investment account, you’ll probably get a 1099. Even if you just rolled it from 401k to IRA, you’ll get 1099-R saying you made a non-taxable rollover.

If we can help with your financial planning needs in retirement, please contact us.

Travis Ford is a certified financial planner with Wallstreet Group Advisors in Jefferson City. Securities and advisory services offered through CreativeOne Securities, LLC member FINRA/SIPC and an investment advisor. Wallstreet Group Advisors and CreativeOne Securities, LLC are not affiliated.