Year-End Planning At All-Time Highs
By: Cameron Diehl, CFP®
Friends – Last year at this time I wrote about year-end planning given recent tax reform and dramatic market volatility. When markets bottomed on Christmas Eve last year the S&P 500 was down nearly 20%. Since then, markets are up more than 30% to new all-time highs and year-end planning will have a very different feel as we approach 2020. So, without further ado, below is an updated version of my annual recommendations to consider as part of your planning.
- Assess Your Tax Efficiency – If you own mutual funds in taxable accounts, it is likely you’ll receive some type of year-end capital gain distributions. The tax bill on these distributions will likely be increased given this year’s strong market performance. Not all investments are created equal in this regard and a careful review may identify opportunities to save on taxes going forward. I’ve written about assessing your portfolio’s overall tax efficiency previously.
- Harvest losses – Even in strong years, selectively harvesting losses in your portfolio to offset gains and reduce income by up to $3,000 can be valuable.
- Rebalance – Strong equity markets over the past year may have tilted your investment allocation off target. Consistent, disciplined rebalancing helps you to sell high and buy low and stay on track with your intended mix of investments over time.*
- Take advantage of Health Savings Accounts (HSAs) – HSAs continue to grow in popularity and are still the best deal going to save and invest. You can read more about HSAs in one of my previous blog posts.
- Contribute to 401(k)s, IRAs and other retirement accounts – As always, maximizing pre-tax contributions to these accounts can reduce your taxable income and give your retirement savings a boost (up to $19,000 for 401(k)s and $6,000 for IRAs in 2019 with catch up options for anyone over 50).
- Give thoughtfully – I wrote about this topic last month. If you’re making any gifts in the near future, please review my tips on tax efficient giving.
- Take required minimum distributions (RMDs) – If applicable, don’t forget to take required distributions from retirement accounts to avoid up to a 50% penalty on undistributed amounts.
- Look ahead to future years – Added complexity from recent reform means tax planning is no longer something that can be done one year at a time. Planning should now take a longer-term perspective and be thoughtfully coordinated over multiple tax years, whether through deferring income, “bunching” deductions or other strategies.
If you have questions about any of the topics above, please don’t hesitate to reach out. I’m always happy to help.
*Rebalancing a non-retirement account could be a taxable event that may increase your tax liability.
