5 Must-Do Retirement
and Tax Planning Tips
2014 winds down, I want to offer a few simple reminders and pass
along some retirement and tax planning tips that will help you end
the year on a high note and propel you into a prosperous 2015.
plans. Letís start with an overview of some retirement plans,
their contribution maximums and specific timetables. The 401(k) is
the basic plan that everyoneís heard about, but not many people,
especially young professionals, take full advantage of. You can put
up to $17,500 each year into your 401(k), and if youíre age 50 or
older, you can contribute another $5,500, called a catch-up
Itís important to remember that with a qualified 401(k) plan, all
contributions have to be made before Dec. 31 of this year. So, if
you have a little extra money that you didnít spend on gifts for the
family, remove all temptation to buy something for yourself and make
one final contribution. Another thing to remember is to leverage
your corporate match program. Find out what it is, and take
advantage of it. Itís basically free money.
retirement accounts. If you have an IRA or Roth IRA, things are
a little different. You canít put away as much money each year, but
the trade-off is that with a Roth IRA your future withdrawals are
tax-free. Because the total contribution amounts are lower, itís
important that you contribute the full $5,500 each year, and if
youíre age 50 or older, take advantage of the $1,000 catch-up
Your contribution deadlines are also a different with IRAs and Roth
IRAs. You have until tax filing time in 2015, plus any extensions,
to make IRA and Roth IRA contributions for 2013. That being said, I
would not advise you to procrastinate in making your contributions.
Try and hit the maximum contributions by the end of 2014 because
your retirement planning will be done for the year. Making the full
contribution by the end of the year also helps simplify next yearís
planning and budgeting process.
If youíre an individual business owner, or itís just you and your
spouse who own the business, you can place your money into a 401(k)
called a solo 401(k) plan. This plan allows you to contribute up to
$17,500 for each individual in 2014. The company can then contribute
up to $33,500 as a corporate match, as long as the amount
contributed doesnít exceed 25 percent of your income. Also, like the
401(k), there is a catch-up contribution of $5,500 available for
individuals over age 50. The Dec. 31 deadline still exists for
contributions, but since a solo 401(k) plan doesnít have to comply
with nondiscrimination testing rules, the filing process is much
One last retirement planning tip: If you are age 70.5 or older, you
must take your required minimum distribution this year because itís
a calendar year program. I cannot stress enough how important this
is, and you literally cannot afford to forget! If you donít make
your scheduled RMD payment, the Internal Revenue Service will assess
a 50 percent penalty on what you donít withdraw. Itís one of the
steepest penalties that the IRS can impose.
Your Tax Bill. Letís move on to tax planning. If you want to do
tax planning, you have to do it during the current tax year. That
may seem obvious, but sometimes people lose track when tax cycles
begin and end. I have a calendar that I update regularly to show
when I need to make local, state and federal tax payments. I created
this calendar for two reasons: I want to avoid unnecessary tax
penalties, and I want to show the months when I have less
discretionary income than I would ordinarily have. If you create a
similar calendar it will help you keep track of your expenses and
plan for 2015.
Now that we know when we have to pay our taxes, letís discuss legal
ways to lower our tax bill. For many investors, tax loss harvesting
is an essential tool used to reduce the yearly tax bill. When
properly executed, it can help you save on taxes and help you
diversify your portfolio in ways you may not have considered.
For example, letís say youíve had a great year and ďinvestment AĒ
has given you a fantastic rate of return, but your other investment,
ďinvestment B,Ē has resulted in a loss. As long as both investments
are within taxable accounts, you can sell your losing positions to
harvest your losses, which can then be applied against your gains,
leaving you with a smaller amount of gains and thus a lower base for
taxes to be applied against.
Fortunately or unfortunately, this has been a really good year, and
most people only have gains. However, if you have a stock or a piece
of real estate that didnít fare so well, you will have to sell it in
order to take your loss and offset the capital gains tax.
Another strategy that you may want to consider is gifting. Itís
important to note that charitable contributions can help reduce your
taxable income. As an individual, youíre allowed to gift $14,000 to
any individual each year. That means you and your spouse could give
a combined total of $28,000 per calendar year. As a result, you only
have a few days left to make that 2014 Gift.
expenses. If youíre a business owner, you can deduct some of
your business expenses from your income, thus lowering the taxable
income. The expenses follow a calendar year cycle as well, and must
be taken by the end of the year, so you can claim them in this tax
contributions. One last tax strategy that you may want to
consider is the 529 educational savings contribution. Certain states
will allow you to take a deduction against state income taxes based
on the amount of money contributed to a 529 plan. Remember that it
doesnít have to be your own 529 plan; it can be for your children or
grandchildren. Just like expenses, you must make the contribution by
Dec. 31 in order to reduce your taxable income for this filing year.
Donít forget Ė while you can wait until tax
filing season for some of these strategies, you absolutely must
claim expenses and make 529 contributions by the end of this year.
Completing one or more of these basic retirement and tax planning
tips will help maximize your retirement accounts.
I hope Iíve given you some great ideas to consider and execute
before the end of the year. The most important, above all tips, is
to take a look at where you are and where you need to go, both
investment and retirementwise. Then set a plan to meet those goals.
Once you have designed your plan, review it to make sure youíre
keeping up with your responsibilities in order to be successful in
the new year. Have a great 2014.
As always, we are available for any questions or concerns you may
have. So feel free to call or email us at 925-757-6018 or send me an
Juan Pablo Blanco, Gina Castaneda and the Rest of the
Smeed Financial Team
201 Sand Creek Rd. Ste. E
Brentwood, CA 94513