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Financial Planning Tips for the Holidays

With Christmas around the corner, we are quickly approaching the end of 2018. Before we know it, it will be a new year in 2019 and it may too late to perform certain transactions that are due by December 31, 2018. While it always seems easier to procrastinate and push things into 2019, there are a number of important financial moves that deserve your attention. Now would be a great time to get organized and have a financial review with your trustworthy financial advisor to make sure nothing is missed. Here are a few tips to help you round up your year-end financial plans.

Note: Mosaic Pacific Investment Advisors do 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.

Retirement plans Retirement plans have deadlines that can affect your overall financial health. Individual retirement accounts and employer sponsored retirement plans provide great vehicles to help with saving to meet long term goals through a disciplined approach. Contributions into certain retirement accounts may help to reduce taxable income and allows you to defer your taxable income into the future. This provides you with an opportunity to grow your assets on a tax-deferred basis and may allow you to spread out your tax liabilities across a longer time-period. It may be a good idea to review your contributions to make sure that you are taking full advantage of the benefits as well as making sure that maximum contributions have not been exceeded which can lead to penalties and other headaches.

Required minimum distributions For individuals who have reached 70 years of age, it is important to understand and review the rules of required minimum distributions for certain retirement accounts. Required minimum distributions (RMD) must be taken each year beginning with the year you turn age 70 ½. If you are not sure if you have taken your RMD, now would be a great time to check to avoid potential penalty imposed by the IRS. The penalty for not meeting your required minimum distributions obligation is an onerous 50% of the RMD amount.

So what if you are not 70 ½ years old but you inherited an individual retirement account (IRA) from someone who had named you as beneficiary? There is also a RMD amount that must be taken out of that inherited IRA and if the amount is not taken, the 50% penalty may apply. These situations can get complicated and if you are unsure of the rules, it may be best to seek professional assistance. See:

Conversions For those of you considering converting your Traditional IRA account into a Roth IRA account, year-end is also the deadline if you want the conversion to count for this year. So why would you consider a conversion? If you believe that your tax bracket will be higher later on and you want tax-free growth on your investments, conversion may be a good option to think about. There are certain features of a Roth IRA that may be more attractive than a Traditional IRA such as tax-free withdrawals or no required minimum distributions among others. Regardless, conversion is something to consider before year-end and your financial planner/advisor along with your tax advisor may help you.

Tax planning and tax-loss harvesting Now would also be a great time to consider tax planning. It may also be a good idea to work with your financial planner or tax advisor to look at strategies that can affect your overall financial health. If you have a business, this may include deferring or accelerating business expenses to optimize on your financial opportunities and reduce your tax liabilities. For your taxable investment accounts, smart use of capital losses may provide you with some tax savings. However, it is important to not let tax savings supersede your priorities for your overall investment objectives, investment portfolio strategy, and time horizon.

Estate plans It is also a great time to review your estate plans to make sure you have a legacy plan for your assets. Meeting with your financial advisor can help you determine whether you need an estate planning attorney to help you plan by setting up or changing your living trust, will, and healthcare power of attorney. If you need changes to your beneficiary designations or not sure if you had even designated your beneficiaries on your investment accounts, now would be a great time to round that up.

Health plans If it is not already too late, now would also be a great time to review your health insurance plans, health savings account, and check your flexible spending account (FSA) balances. Check in with your employer to see what changes require your attention which can affect your expenses and benefits. If you have not used up all your flexible spending account balances, be aware of the “use it or lose it” rules and options that accompany FSAs. Don’t stall, you may still be able to make changes to your health benefit options for next year and position you for better financial health.

Planned giving and charitable contributions Altruism is the unselfish concern for the welfare of others. As much as humans desire to take for themselves, humans also have desires to help others driven by our inherent altruistic nature. This may be in the form of planned giving and charitable contributions. If you are considering gifting and transferring your assets away, it would be helpful to know that there are annual exclusion limits. For 2018, the annual exclusion for gifts to each donee is $15,000. While gifts do not allow deductions on your income taxes, it allows you to transfer your assets in a planned structure to avoid having to file a gift tax return.

Charitable contributions on the other hand may reduce your income tax liabilities and it can play a role in your overall financial plan. Contributions are deductible in the year that they are made so if you want it to count this year, you may do so before year-end. Your financial advisor and tax advisor are great resources to help with your financial plans due to the complexities of the tax codes. See:

Individual retirement accounts (IRA) Another way to stash away money for retirement besides saving through an employer sponsored retirement plan would be contributing to a Traditional IRA and/or Roth IRA. These are retirement accounts that allow you to contribute money to save for retirement and grow it tax-free. Note that if you or your spouse are covered by an employer sponsored retirement plan, the amount that may be tax-deductible for contribution to a Traditional IRA may be limited. Check with your financial and tax advisor to be sure you are making the right moves.

For year 2018, your total contributions to all of your Traditional and Roth IRAs cannot be more than $5,500, or $6,500 if you are age 50 or older.

For year 2019, your total IRA contribution limit is $6,000, or $7,000 if you are age 50 or older. If contributing to a Roth IRA, note that your contributions may be limited based on your filing status and income.

Although the IRA contribution deadline for year 2018 is not until Monday, April 15, 2019, it is advisable to make your contributions prior to the holidays before your big spending on holiday gifts and parties. Seek professional tax advice if necessary. See:

SEP IRAs For SEP IRA accounts, you must have the account opened by your company’s tax filing deadline (plus any extensions) for the tax year a contribution is made. As such, if your company filed for an extension of 2017 taxes to be filed in October 15, 2018, you can open a SEP IRA account and your employer can fund your SEP IRA account with an employer contribution for 2017 until the extended due date of the tax return. This can be a significant tax planning tool for small business owners. For 2017, you can contribute the lesser of 25% of compensation (20% if self-employed) or $54,000. For 2018, this number increases to $55,000. Due to the complexities of the U.S. Tax Code, we suggest seeking professional tax advice if necessary.

401K & 403B For 2018, the maximum employee contribution is $18,500 (under age 50) or $24,500 (over age 50). The amount that you defer from your paycheck must be done before year-end. If you are not on track to max out your contributions, I would recommend assessing your current savings to see if you can increase your salary deferral for the remainder of the year. This will not only build your account balance quicker but it will also save you money on taxes.

Budgeting and spending check-up Update your monthly budget by taking a look at your spending patterns from the year. This helps with deciding if you can increase your 401k salary deferral for the remainder of the year to reduce taxable income, and also how much discretionary income you have for Christmas spending.

Life insurance policies Here are some tips for your life insurance needs… - 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

I hope that these tips are helpful, and should you need more help, please reach out to us or your trustworthy financial advisors.

May your holiday season be merry and bright!

Mosaic Pacific Investment Advisors, LLC is a Registered Investment Advisor in the state of Hawaii. This information is provided for general education and is not considered to be investment advice. Please contact your advisor for specific advice concerning your financial situation. Any rates or projections noted herein are for illustration purposes only and does not reflect current interest rates nor is a forecast of future returns or interest rates. Transactions requiring tax consideration should be reviewed carefully with your accountant or tax advisor. If you would like more information on our firm our ADV Part 2A (Brochure) is always available to you at no cost.

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