Year End Financial Planning Review

Before you know it, the new year will be upon us. It is always important at this time of year to review your financial plan to see if there are opportunities to make any beneficial “tweaks” prior to tax time. Depending on your unique situation, you and your wealth advisor may agree that some of the ideas listed below make sense for you and your family.

Maximize your tax-deferred annual contributions

One way to help reduce taxable income is by maximizing contributions to your tax-deferred retirement plan(s). Are you maximizing the contribution limits allowed for your particular plan (401k, 403b, etc.)? The 2018 contribution limits are $18,500 for a 401k or 403b plan, with a $6,000 catch-up contribution if you are over the age of 50. Keep in mind your 401k and 403b contributions must be deferred from current pay, so check with your employer before year end. Don’t forget, IRAs are terrific savings vehicles too! You can contribute $5,500 to your IRA in 2018, or $6,500 if you are age 50 or older, up through April 15th of the following year.¹

Maximize your annual gifting

Have you made your annual exclusion gifts yet? In 2018, you may gift up to $15,000 to any individual free of gift or estate tax. A married couple combined may gift up to $30,000 per beneficiary in this calendar year. In 2019, the annual exclusion amount will stay the same. In addition, you may pay directly for qualified educational and medical expenses in any amount without gift tax consequences.

“Do Good” with your IRA required minimum distributions (RMDs)

Did you know that you can make Qualified Charitable Distributions from your IRA? You may distribute up to $100,000 (per taxpayer) of your RMD directly to a charity, avoiding the recognition of this amount as ordinary income. If you have not taken your RMD yet for 2018 and have not satisfied all of your charitable obligations, consider satisfying these obligations with a portion of – or your entire – required distribution amount. These distributions will have the benefit of being excluded from your Adjusted Gross Income as long as you are over 70½ years old. It is important to note that charitable commitments may also be satisfied by donating low-basis stock held for more than one year from a taxable account (which allows complete avoidance of taxable gains on the stock for you and the charity). We recommend that you discuss these alternatives with your Mesirow wealth advisor or CPA.

Minimize the tax impact on investment gains

At the end of the year, it may be worthwhile to review the potential gains recognized from all of your investment accounts to determine whether it makes sense to offset some of these gains with losses. We can help you coordinate across all accounts. (When utilizing this strategy, it is imperative that you are aware of the “wash sale rule,” which prevents you from selling one security to recognize the loss and then buying back the same security within 31 days.) 

Convert your Traditional IRA to a Roth IRA

Consider making a nondeductible contribution to your IRA and converting it to a Roth IRA. Be careful though. If you have an existing IRA, you should consult with your Mesirow wealth advisor and your accountant to determine if a Roth conversion is appropriate. If you have multiple IRA accounts, they are treated as one IRA for tax purposes. Therefore, the conversion would be considered a partial conversion of all IRA assets, not just the newly contributed funds. This would lead to a partially taxable conversion. 

Discuss any changes in your life with us

Life is always changing. We upsize and downsize our homes, change jobs, have children or grandchildren, go back to school, become involved with new charitable organizations, adopt healthier lifestyles or struggle with illness, re-focus from child-care to parent-care, and so many more events that contribute to – and sometimes challenge – our lives. Taking the time to talk these changes over with your advisor allows us to revisit your goals, redefine your desired outcome, and ensure that we are taking the necessary steps to achieve your vision.


1 Deductibility of IRA contributions is subject to IRS income limitations.