It’s the season to do some year-end financial planning. If you haven’t spoken with your adviser in a while, this may be a great time to engage in a conversation about any changes in your financial life.
Throughout my career I’ve seen a number of opportunities lost due to a lack of coordination between clients’ many different advisers. Please don’t let this happen to you.
To prod you forward, I recommend you first review any major changes in your financial life during 2015. For example, did you incur unusually large medical expenses this year? Have you sold something that resulted in an extraordinary gain or loss? Has your income increased considerably? Or has it possibly decreased due to a job loss or job change? The list of possible changes in your life is vast.
With this information in hand, there are many opportunities to save money. Unfortunately, many are connected to a deadline of December 31 involving our overly-complex and often unforgiving tax code. It’s clearly too much for a normal, busy person to follow. Therefore, if you’ve engaged advisers for your investments, tax planning and legal affairs, encouraging a coordinated level of service can work wonders.
For example, do you know that federal capital gains are taxed at a 0% rate if your taxable income falls below the 15% federal tax bracket threshold? If you are sitting on unrealized capital gains from years worth of gains, you may be able to take advantage of super low capital gains taxes in a year in which you earn less than typical.
In addition, if you are able to show less taxable income this year than normal, it may be intelligent to consider a partial Roth IRA conversion from part of your regular tax-deferred retirement accounts. Of course, the analysis required for Roth conversions is not simple and does involve making a reasonable set of assumptions about the unknowable future. Doing that analysis is a smart move.
Another possible retirement savings strategy is available to self-employed individuals who have the desire to save more and pay less tax today. If you qualify, a high-earning small business person can save much more through a little-known vehicle called an Individual 401(k) than they can through a regular IRA. Unlike a regular 401(k) plan for a small business, these special use 401(k) plans are not complex or costly to set up or maintain.
However, if you don’t make the right moves with this information by December 31, you stand to miss out on these planning opportunities and more. As the famous Nike ad once said, just do it – before the busy holiday season. Amazingly, it’s once again just around the corner.
