The fourth quarter is not just the time to swap the swimsuits for winter coats: it is a critical time to take action on certain wealth management priorities. Here are eight items that we urge every Clear Harbor wealth management client to discuss with us as we march toward year-end.
1. Maximize your retirement contributions. IRA and 401k plans provide extraordinarily tax-friendly vehicles for growing wealth, yet too often Dec. 31st finds they have again been neglected, leaving significant cash on the table. Take a moment to make sure you have locked in the full value of your 401k plan, including any employer match. It is also important that any changes in these allocations during the year be considered holistically in the context of your complete wealth management picture.
2. Maintain your retirement vehicles. In addition to the unique benefits of many retirement accounts, some carry obligations that are easy to overlook. If you are 70.5 years of age or older and have not yet taken your Required Minimum Distribution from your IRA, please call us to help avoid significant penalties.
In some cases, it may be advisable to convert your traditional IRA to a Roth IRA. A “Roth conversion” allows your portfolio to grow tax-free, with no required minimum distributions during the owner’s lifetime. Considerations favoring a conversion include age, income level, future estate plans, or an expected move to a significantly higher tax bracket.
3. Limit your capital gains tax burden. Clear Harbor emphasizes tax efficiency in managing client portfolios. A tax-loss harvesting strategy can provide significant savings, but requires coordination prior to year-end. In addition to the tax management strategies that we undertake directly on your behalf, please be sure that your Clear Harbor advisor has an understanding of taxable gains that may have been realized outside of portfolios where we have discretion. In New Jersey and other states where capital gains losses cannot carry forward to future years, such a discussion is especially time-sensitive as 2015 draws to a close.
4. Incorporate investment strategies into your charitable giving. The donation of appreciated investable securities is a wonderful way to advance your philanthropic goals, while securing a tax deduction at fair market value and avoiding capital gains taxes at the same time. Arranging such donations often proves significantly more desirable than writing a traditional check to your favorite charity. In other cases, establishing either a Donor Advised Fund or an independent foundation may make strategic sense. And for individuals or families that own land, charitable conservation easements may provide an attractive tax deduction while preserving habitat and the environment. It is important to consult with your accountant about the specifics of each gifting strategy, as some might leave you vulnerable to the alternative minimum tax (AMT).
5. Options for employers. Employers who intend to make a 2015 contribution to a pension or profit-sharing plan must have such plans in place before year-end. This contrasts with contributions to Roth and traditional IRAs, which can be made through April 15, 2016, and those to SEP IRAs, which can be as late as October 15, 2016 for taxpayers who make late filings. If you are looking to set up a particular plan, please contact your Clear Harbor advisor.
6. College planning. Those who welcomed a new child or grandchild this year may wish to open a 529 plan to fund their college education. Individuals can contribute as much as $14,000 per year without the beneficiary incurring taxes, so long as the funds are used for higher education purposes; in the meantime, these investments grow tax free. One can give up to $70,000 in one lump sum and spread the gift evenly over 5 years without incurring a federal gift tax.
7. Estate planning. It is natural to place more emphasis on creating a legacy than on protecting it. However, careful planning is the only way to ensure that your wealth survives you in the manner that you desire. If you have not established an estate plan, or have neglected to revisit it lately, it may be wise to contact your estate attorney for an update on tax changes adopted in recent years. We would be honored to partner with you and your attorney to structure or update an estate plan appropriate to your objectives and the current tax environment.
8. Portfolio review. Finally: as we have reiterated in other Clear Harbor Flashes, this remains a complex and challenging investment environment characterized by very different risks from just a few years ago. Year-end is a great time to review your financial allocations to ensure alignment with your evolving investment objectives in light of evolving market conditions, expenses, and tolerance for portfolio volatility.
The Clear Harbor team is honored not only to execute specific investment strategies on your behalf, but to help you consider your overall financial goals, methodically evaluate your risk, and advise holistically on your comprehensive wealth picture. It is our mission to partner with you, your accountants and attorneys to shape a wealth strategy that takes into consideration all of your assets, including those not managed by Clear Harbor, to address your financial needs both today and well into the future.
On behalf of our entire team: we look forward to our next conversation.