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The end of the year presents an opportunity to close the chapter on one period of life and start anew. The same thing applies to your finances. Here are three moves investors should consider before year-end.
1. Strategize how you give. If you intend to donate to charities or nonprofit organizations, consider how much to gift in order to receive tax benefits. If you’ve held an appreciated stock for more than one year, for example, you could consider donating it to the charity directly. Your charitable deduction will be recognized at fair market value (subject to certain AGI limitations), and you avoid paying capital gains tax. The charity you gift the stock to will benefit by gaining an asset it can sell for cash or keep for the future. As a nonprofit, the charity will also avoid capital gains taxes. Higher income taxpayers will need to factor in the phase-out of itemized deductions and the potential effect on their charitable contributions.
2. Schedule a portfolio checkup. If you have a Financial Advisor, schedule a year-end meeting to review your current financial standing, goals, and the implications of pending economic changes.
3. Focus on your retirement savings. Year-end is the prime time to prioritize your biggest investment goal: retirement. If you’ve changed jobs, consider rolling over old 401(k) accounts from previous employers into an Individual Retirement Account (IRA).Check on the year-to-date status of your retirement contributions to confirm that you have maximized your annual tax benefits. Click here for current IRA contribution limits. (Depending on your income, you may not qualify for both Roth and Traditional tax benefits). Failing to maximize your retirement contributions can cost you more than you realize.
Savvy investing is about managing uncertainty to help maximize the potential return on your investment. Consistently using year-end to evaluate your investment strategy can help ensure that you are well-positioned for years of continued financial progress.
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IRS Publication 526 Cat. No. 1505A “Charitable Contributions"
Wells Fargo Advisors is not a tax or legal advisor.
401(k) withdrawals are subject to ordinary income tax and may be subject to a federal 10% penalty if taken prior to age 59½.
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