The last two months of the year carry three planning moves that only work before December 31. Miss the date and they wait a year.
A Roth conversion
Moving money from a traditional IRA to a Roth IRA means paying tax on the converted amount now so it isn’t owed later. The conversion has to be completed by December 31 to count for this tax year, and it can’t be undone once it’s done. That makes it a decision to make with a clear view of this year’s income, not a guess. A year with lower income than usual, a gap between jobs, a first year of retirement, is the year it tends to make the most sense. Next week we’re re-releasing our Roth Conversion Window Guide with the three questions that decide it.
Charitable gifts
Gifts have to be complete by December 31 to count on this year’s return. For cash, that’s simple. For appreciated stock, it isn’t. Transferring shares to a charity or a donor advised fund takes the custodian time, and the custodian’s own cutoff for year-end requests lands well before the last week of December. If a gift of stock is part of your plan, the request needs to go in during November, not during the holidays.
For many households this is also the season to ask a different question. What is the giving for. Which causes, which people, which values the household, wants its money to reflect. The tax treatment matters. It isn’t the reason.
Tax loss harvesting
Selling an investment at a loss to offset gains elsewhere is a December 31 move as well, and it comes with a rule that trips people up. Buying the same or a substantially identical investment within 30 days before or after the sale disallows the loss. The trade has to be planned with that window in mind, and it has to settle before the year ends. It also isn’t always worth doing. A loss in a position you’d want to hold anyway, or a loss small enough that the trading cost eats it, is usually better left alone.
What to line up now
Last year’s tax return, so this year’s decisions are made against the right bracket.
An estimate of this year’s income, including any bonus, severance, or equity that will land before December 31. Timing matters for every item on this list.
Your giving plan for the year. Who, how much, and whether cash or stock.
Any required distribution that applies to you, and whether it’s been taken.
The season
From November 1 through December 31 the firm is in tax planning season. For clients, that means your advisor is reviewing these items for your household and will reach out about the ones that apply. If a bonus, a gift, or a charitable plan is coming before year end, it helps to let your advisor know this week.
If you’re not a client and this list raised a question, Let’s Talk.
IMPORTANT DISCLOSURE INFORMATION
Past performance is no guarantee of future results. Different types of investments involve varying degrees of risk. Therefore, there can be no assurance that the future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended and/or undertaken by Advocates Wealth Planning (“Advocates Wealth Planning”), or any non-investment related content, will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Neither Advocates Wealth Planning’s investment adviser registration status, nor any amount of prior experience or success, should be construed that a certain level of results or satisfaction will be achieved if Advocates Wealth Planning is engaged, or continues to be engaged, to provide investment advisory services. Advocates Wealth Planning is neither a law firm nor a certified public accounting firm, and no portion of its services should be construed as legal or accounting advice. Moreover, no portion of this discussion or information serves as the receipt of, or a substitute for, personalized investment advice from Advocates Wealth Planning. A copy of our current written disclosure Brochure discussing our advisory services and fees is available upon request or at www.theadvocateswealth.com. The scope of the services to be provided depends on the needs and requests of the client and the terms of the engagement.
Please Remember: If you are an Advocates Wealth Planning client, please contact Advocates Wealth Planning, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless and until you notify us, in writing, to the contrary, we shall continue to provide services as we do currently.