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Take These Steps to Get Ready for Year End Finances

“New Year's Eve is far away.  However, it's never too early to organize your finances for the end of the year. Do it while there’s still plenty of time to increase your retirement nest egg, lower your taxable income and avoid tax penalties.”

September still feels a lot like summer in most parts of the country, and it’s tempting to think it will never end. However, as we are reminded by USA Today in the article “Retirement tips: 8 Ways to start your year-end financial planning now,” you can save yourself a lot of time and money by starting to get organized and taking action long before the end of the year.

Among the tips are:

Take care of your RMDs.

Once you reach 70½, you must start taking withdrawals from IRA, SIMPLE IRAs, SEP IRAs or any retirement plan. You must take the smallest possible amount by December 31. The same goes for inherited IRAs and inherited Roths. If you don’t take these distributions, or if they are not large enough, the penalty is painful: a 50% excise tax on the amount not distributed. Spare yourself the last-minute risk and do this in October or November.

Careful it’s not too big.

If you make an excessively big contribution when you roll over disallowed amounts, such as your annual RMD, or you don’t follow the once-per-year, 60-day rules about amounts withdrawn and then returned to a retirement account, you could face a 6% penalty of the excess contribution.

Give with a Qualified Charitable Distribution (QCD).

If you’re over 70½, you can make a donation using a QCD—that’s a donation from a retirement account RMD to a qualified charity. It excludes the amount you donate from your taxable income and it can be used to satisfy all or part of the amount of your RMD from an IRA.

It’s Tax Harvest Season

If you have a taxable account, examine unrealized gains and losses long before the year ends. Are there positions you can take with unrealized losses that can be sold to reduce or eliminate the gain? Year-end distributions can create problems for mutual fund owners. Consider waiting to purchase a mutual fund, until after it distributes capital gains.

Look at Funding a Roth IRA and Purchasing Cash Value Life Insurance

Both these financial vehicles can grow tax free and distributions are also mostly tax free. You can also consider a partial conversion of your traditional IRA to a Roth IRA. You’ll pay taxes on the amount of the income, so be sure you have enough money to pay the taxes due on the Roth IRA conversion. Do it in a year when your income will be lower to keep taxes low.

Beneficiary Designations and Your Estate Plan

While you’re looking over your finances, take the time to review beneficiary designations and your overall estate plan. Have there been changes since the last time you reviewed your estate plan? Marriage, death, birth, divorce, the sale of a property or an inheritance: these are all reasons to review your estate plan. Remember that your beneficiary designations supersede anything in your will, so make sure they are also up to date.

Don’t Forget the Finishing Touches

Estate planning attorneys hear this all too often—a trust is created but never funded. Titles to property don’t get changed. Make sure that you finish what you’ve started. Start early, so you can go into the holiday season with all of your personal legal and financial tasks completed.

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