The holiday season and New Year can be a great time to review your finances. Expand each checklist item below for more information.
Tax-Loss-Harvest in your taxable accounts
Our algorithm automatically checks your portfolio daily for TLH opportunities. Just keep contributing and we’ll keep investing, rebalancing, and harvesting! If you have accounts that are “self directed,” this may be the time to review those holdings for losses as well. Premium clients that have been with us since Oct 2014 have seen an average of $2,036 in tax savings due to harvesting! Want more details on TLH? Read this.
Rebalance your portfolio
Our algorithm checks for rebalancing opportunities daily as well, and recommends a rebalance to our trading team if your portfolio is outside of its target asset allocation. We always dynamically weigh the cost of trading and the potential benefit to make the decision, ensuring that your portfolio only gets rebalanced when it is appropriate for you. On average, we rebalance Premium clients’ portfolios 4-6 times per year, although this can vary based on market conditions.
Donate appreciated stock to charity
Do you make annual contributions to your favorite charity or non-profit? If so, you may want to consider donating appreciated shares of stock; it can save you capital gains tax while providing more money to donate! A win-win. If you have appreciated shares of individual stock (or ETFs) that you’ve held at least one year, you may be eligible to donate such appreciated shares from your investment portfolio as a charitable contribution. Read more here and here.
Make your IRA contribution
By now you should have a pretty good idea of what your 2015 income will be, so you may be able to tell if you qualify for making a Roth IRA contribution. While April 15th, 2016 is typically the deadline, there’s no need to wait until April to make your 2015 contribution. In fact, the earlier you make your contribution, the more time it has to work for you! Earn too much to contribute directly to a Roth IRA? There may be alternative tax strategies that could allow you to contribute to a Roth IRA, if you do not have an existing Traditional or Rollover IRA. You should talk to your personal tax or legal advisor for more information about these strategies. And remember, if you and your spouse are not covered by a retirement plan at work, you may qualify for a deductible Traditional IRA contribution to potentially lower your taxable income for the year. In addition, if your spouse is covered by a retirement plan at work and you are not, you may qualify for a partially deductible Traditional IRA contribution to potentially lower your taxable income for the year. Whether it’s a Roth or Traditional IRA contribution, consider the benefits of maxing out your IRA contributions.
Increase your 401(k) contributions for 2016
Now is a great time to assess and possibly increase your 401(k) contributions for next year. The maximum contribution amount remains the same in 2016 at $18,000, with an additional $6,000 catch-up contribution if you are age 50 or over. The percentage of employees maxing out their 401(k) contributions has increased over the past few years, as savers realize the benefits of saving for retirement in a 401(k) plan.
If you make 401(k) contributions as a percentage of your salary, rather than as a fixed dollar amount, here’s a quick way to determine how to calculate your contribution percentage. Divide $18,000 (or your contribution goal) by your annual salary, and use the resulting percentage as your contribution percentage for 2016. Contact your company’s human resources or payroll department for information about how to update your 401(k) contribution amount. For example, a client earning $85,000 would divide $18,000 / $85,000 and get 21.17%. If you round up by a few percentage points (say 24% in this case), you can hit the maximum allowable contribution a few pay periods early, ensuring you get the full $18,000 invested before the end of the year and allow yourself some breathing room for any hiccups.
If your plan allows both pre-tax and Roth contributions, you’ll need to decide what kind of contributions to make. This mainly hinges on your current tax bracket versus your anticipated tax bracket in retirement. Need help deciding? Book an appointment with one of our advisors today or email us at firstname.lastname@example.org and we’ll talk about the options with you.
Leave a job? Consider rolling over your old 401(k)
When you leave an employer, you have the option to roll your 401(k) savings (or money in another eligible retirement plan, such as a profit sharing plan or 403(b) plan) to an IRA or a new employer’s plan (if available). Rolling over to an IRA may be beneficial for many reasons, including:
- Consolidating your assets in one place
- Likely more investment options
- Potentially cheaper options, such as low-cost ETFs
Sometimes however, it can be wise to keep the funds in your old 401(k) plan if, for example, you have access to lower cost institutional funds that are not available to retail investors. Also, IRAs are subject to different legal restrictions and protections than are 401(k) and other employer-sponsored plans, and these protections can vary by state. You may also have the option to roll over your old 401(k) plan savings into a 401(k) offered by your new employer. There’s a lot to consider, so it’s best to do your homework and talk the decision through with a licensed financial advisor who can review all your options with you. As a Premium client, you get unlimited access to our licensed financial advisors and CFPs, who are always just a phone call or email away.
Set up a college savings plan for your children (or children-to-be!)
It’s never too early to start saving for the rising cost of your child’s education. Even if your little one is still in the womb (or even a few years away), you can open a college savings account in your name and then transfer it to your baby after his or her birth.
Define your investment goals for 2016
At FutureAdvisor, we love using behavioral finance to help people save more money. One way to do that is to write down your goals and share them with a friend. As shown in an academic study, people who write down their goals and share them with a friend are 33% more effective in accomplishing them than those who simply think about their goals. 
Take the remaining time in 2015 to write down your investment goals for 2016 and better yet, share them with a spouse, sibling, or close friend. Maybe you want to max out your 401(k) plan contributions, save $5,000 for your child’s education, reduce your individual stock positions, or reevaluate the fees and expenses you pay for the funds in which invest to see if you can do better. Remember, you won’t be able to control or predict how the markets behave in 2016, but you can certainly control your savings rate, diversification, and the fees you pay.
We hope you enjoyed reading about some year-end financial moves! Here’s to a happy, healthy, and wealthy New Year!
The information contained herein is for informational purposes only. FutureAdvisor does not provide legal or tax advice. The information expressed is educational in nature, is not individualized, and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, and the contents herein may not be updated on a real-time basis to reflect changes to the tax laws. Changes in such laws and regulations may have a material impact on pre- and/or after-tax investment results. Laws of a particular state or laws which may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of the information contained herein. Clients should consult with their personal tax advisors regarding their specific situations and the tax consequences of investing in particular types of investments or through different types of accounts. FutureAdvisor makes no warranties with regard to the information herein or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. http://www.dominican.edu/dominicannews/dominican-r...