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Friday Financial Five – December 12th, 2014

Friday, December 12, 2014


Year-end tax considerations

It wouldn’t be December if there weren’t last minute Congressional negotiations to address important tax breaks that expired the year before. High income earners definitely need to prepare for possible Medicare surcharges and the 3.8% net investment income tax. Individuals and small businesses will have to address health insurance provisions heading into 2015. For those that expect to be in a higher tax bracket next year, it might be prudent to review a Roth IRA conversion.

The full body portfolio check-up

The performance of different asset classes varies on a yearly basis, so now’s a good time to review allocations. Real estate funds have increased dramatically this year, while small company, international and emerging market investments may be in the negative. This may call for an adjustment to get portfolios more in line with the originally intended targets. Bond positions should be reviewed given the possibility of rising interest rates.

Pay attention to work benefits

401k and 403b accounts have a $17,500 employee contribution limit for 2014, with a $5,500 catch up for those over 50. If there’s available money and opportunity, try to sock away as much into retirement before the end of the year. Next year, these maximums increase to $18,000. For those that typically maximize contributions, confirm the $500 increase in payroll deduction for 2015 with human resources. For Flexible Spending Account users, there may be an opportunity to roll over unused money.

Tackle estate planning

The excitement of spending time with loved ones over the holidays may bring estate planning matters to mind. Plenty of high profile celebrity cases this year emphasized that wills, trusts, and powers of attorney are necessary to ease the burden on beneficiaries. For business owners nearing retirement, there is an emphasis on continuity and succession planning. This requires a business valuation, the identification of a successor, and a legal agreement put in place to outline what happens when the business owner sells the business or passes away. 

Get RMDs processed 

Required Minimum Distributions that aren’t withdrawn get taxed at 50%, so it’s important to get these squared away. Keep in mind that a 403(b) contract owner must calculate the RMD for each contract owned but can take the total distribution from one account. 401(k) plan owners must take from each account separately and RMD rules also apply to Roth 401(k) accounts.

Dan Forbes is a regular contributor on financial issues. He is a CFP Board Ambassador. He leads the firm Forbes Financial Planning, Inc in Providence, RI and can be reached at [email protected]


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