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Year-end portfolio and financial planning

As we look ahead to the holiday season, it may be a good idea to address any year-end portfolio and financial planning. As always, please consult your tax professional for applicability to your personal tax situation. Here are some things of note.

Required minimum distributions (RMD)- for investors with IRAs and have reached the age 70 ½ , RMD planning is necessary.

  • Don’t be late on your distribution- the penalty for a late distribution is a hefty 50% of the RMD amount. Example: If you missed a distribution of $10,000 you will pay a penalty of $5,000 in addition to the income tax attributed to the $10,000 distribution.

  • Most custodians of your IRA account will calculate your RMD, which is based upon the prior year’s ending value. This may be complicated if you have IRA accounts at various providers.

  • Qualified Charitable Distribution (QCD)- although the QCD has not been reinstated for 2015 as of this writing, continually check on its status. In 2014, congress waited until the last two weeks of December to confirm its applicability. The QCD enables the investor to fulfill the RMD, contribute to charity, and reduce adjusted gross income.

Tax-loss harvesting- within taxable accounts, smart use of capital losses may provide you with some tax savings, however, they should not supersede your overall investment objective in portfolio management.

  • Selling a position at a capital loss can be used to offset capital gains, up to $3,000 from your regular income, or be rolled over into future years for offsetting.

  • Take into account all costs when analyzing the transaction. This includes fees or commissions to sell the position as well as any impact in the price of the shares if you are selling a large amount of a particular company.

  • Be aware of the ‘wash-sale’ rules- states that if you sell a security at a loss and buy the same or "substantially identical" security within 30 days, the loss is typically disallowed for current income tax purposes. The definition of what determines two securities to be “substantially identical” is not exact. However, remain on the conservative side of the equation to avoid possible disallowance.

Charitable contributions- if you are planning to make any charitable contributions here are some things to think about.

  • Contributions are deductible in the year made. As such, plan to take any action by December 31st.

  • You must itemize deductions to claim a charitable contribution. The standard deduction for 2015 rises to $6,300 for single filers, and $12,300 for married filing jointly.

  • Gifting cash versus an appreciated stock held for longer than a year- you may be able to save on capital gains tax by donating appreciated stock. If you donate the appreciated stock directly, you do not have to pay the long term capital gains tax.

Monitoring mutual fund distributions- mutual fund distributions can be substantial and are paid to shareholders of record regardless of how long you have held the position. The distribution may include short-term & long-term gains, qualified dividends, and ordinary income.

  • Most fund companies will announce the expected distributions for their funds a few months in advance of the payable date.

  • The fund company will announce a record date, ex-date, and payable date. If you own the shares on the record date, you will receive the distribution on the payable date.

  • These distributions can be substantial. If the mutual fund made a large number of portfolio changes throughout the year and realized gains from those transactions, a sizable distribution may ensue. Remember, the share price declines to reflect the distribution amount. And the distribution amount is taxable in the year received.

  • If you are looking at investing towards year-end through January, make sure to check the expected distribution and the various dates.

Annual Spending Check-up- this is something I like to do in the last quarter of the year and prior to Christmas. This gives me a summary of not only spending habits from the year, but also how much discretionary income I have for Christmas spending. Further, this helps with deciding if you can increase your 401k salary deferral for the remainder of the year to reduce taxable income.

Life Insurance Policy Review

  • Check beneficiary designations

  • Is the coverage still needed, and if so, are you getting the most bang for your buck?

  • Do you need more coverage due to an event such as a new child, a mortgage, etc.?

  • If you own a life policy with an underlying investment component (variable life, universal life), it is prudent to check on the performance of the funds and if they are appropriate.

Cory Nakamura CFA, CFP®

Chief Investment Strategist and Financial Advisor

CFA Charterholder



CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, Certified Financial Planner™ and CFP® in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

Disclosures: Mosaic Pacific Investment Advisors does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction

Investment Advisory Services offered through Mosaic Pacific Investment Advisors, LLC

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