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Year-End Financial Planning

With 2014 drawing to a close, it's a great time to begin organizing your finances for the New Year. To help you start 2015 on the right foot, we've put together a list of financial planning topics that are worth reviewing.

Health and wellness
Flexible spending accounts. Money in a flexible spending account (FSA) generally must be used by year-end or it will be forfeited. Recently, however, the IRS modified this rule to allow participants to carry over up to $500 of unused funds into the next year. (Your employer plan must elect to participate in this option, so be sure to check your plan terms to see if you can take advantage of the new rule.)

If your employer has not elected the carry-over option, now's the time to schedule those doctor's appointments and stock up on items that are eligible for flexible spending. Taking action immediately may help relieve some last-minute headaches and ensure that you don't lose your hard-earned dollars.

Additionally, open enrollment for certain employee benefit plans begins around this time of year. If you're not using an FSA, take stock of your qualifying expenses and consider whether setting up an FSA for 2015 would make sense. If you already use an FSA, assess how much extra you have left in the account (or how much of a deficit you ran) and recalculate your allotment for the New Year.

Medicare enrollment. Open enrollment for Medicare started in October and ends December 7, 2014. For many, this is the only chance to change health and prescription drug coverage for 2015. If you want to make any changes, act now.

Retirement planning
Review your retirement plan allocation and contribution elections. If you're not taking full advantage of any matching features or potential tax benefits, consider maximizing your contributions. It's also a good time to ensure that your allocation remains in line with your objectives.

Recharacterization of Roth IRA rollovers or conversions. If you converted a traditional IRA to a Roth IRA during 2014 and paid tax on the conversion, mark your calendar now to allow plenty of time to meet the October 15, 2015, deadline for recharacterizing (i.e., undoing) the conversion.

Taxes, taxes, taxes
RMDs. If you're turning 70½, you'll need to devise a strategy for taking required minimum distributions from your traditional IRA and 401(k) plans.

Estimated taxes. Be sure to take potentially large bonuses and a prosperous business year into account when considering your taxes for 2014. You may have to file estimated taxes or increase the upcoming January payment.

Managing marginal tax brackets. In 2013, a number of new tax provisions took effect. If you are on the edge of these tax thresholds, you may be able to defer or accelerate income or deductions to help minimize taxes.

  • The 39.6-percent marginal tax bracket affects taxpayers with taxable incomes in excess of $406,750 (individual), $457,600 (married filing jointly), $432,200 (head of household), and $228,800 (married filing separately).
  • The 20-percent capital gain tax rate applies to those in the 39.6-percent marginal tax bracket.
  • Itemized deductions and personal exemption phase-outs affect those with adjusted gross incomes above $254,200 (individual) and $305,050 (married filing jointly).
  • The 3.8-percent surtax is applied to the lesser of net investment income or the excess of modified adjusted gross income over $200,000 (individual) and $250,000 (married filing jointly).

Too little or too much withholding. Workers with gross earned income of more than $200,000 may have had too little or too much tax withholding in 2014. Employers may have withheld an additional 0.90-percent tax on incomes over $200,000 without regard to the taxpayer's withholding status, which would put these taxpayers at a higher threshold. Other taxpayers may have had too little withholding because of other income from second jobs that was unknown to the employer. Employees should plan to take a credit on their returns or pay additional taxes.

Reporting losses on stock sales. Be aware of important deadlines regarding trading date closings. A trade to sell a long position must be executed by the close of the last trading date of the current year. Similarly, a trade to sell a short position must be executed so that it settles by the last trading date of the current year.

Estate planning
To help ensure that your estate plan stays in tune with your goals and needs, it's important to review and update it on an ongoing basis. If you haven't done so during 2014, take time before the end of the year to:

  • Check trust funding
  • Account for any life changes
  • Update beneficiary designations
  • Review trustee and agent appointments
  • Review provisions of powers of attorney and health care directives
  • Prepare for the distribution of personal effects
  • Get a firm understanding of all of your documents

Saving and goal-setting
Did you set savings goals for the current year? Realistically assess how well you've met those goals and think about your goals for the upcoming year. There's no reason you can't make some financial resolutions along with your other New Year's vows.

If you determine that you're off track, let us help you develop and monitor a financial plan. We're happy to go over the topics that are most relevant to your personal situation, so you can better prepare for the coming year. Whatever your planning may entail, we wish you a happy, healthy, and prosperous 2015!

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.


2014 Commonwealth Financial Network®