Year-end Financial Planning Checklist (2014)


Happy Thanksgiving!  Updating this checklist every year has become one of my Thanksgiving traditions.  Today is a special day to enjoy with family and friends and reflect on how fortunate we are to live in a country where we can enjoy life, liberty, and the pursuit of happiness.  Believe it or not, New Year’s Day is only five weeks away.   That leaves little time to wrap up year-end financial matters.  Here is my annual checklist, updated as usual for current tax law.

1.  If you are a high income taxpayer, you already know from last year’s tax bill that taxes went up.  You are aware of the new 3.8% Net Investment Income Tax, the higher rates on capital gains and dividends, the phase-out of itemized deductions, and the Medicare earned income surtax.

2.  If you were 71 or older in 2014, make sure you take the required minimum distribution (RMD) from your individual retirement account (IRA) before December 31st.   If you don’t, the IRS can penalize you 50% of the amount you should have withdrawn.

3.  If you inherited an IRA in 2014 from someone who was taking required distributions, verify that they took their RMD before they died.  If not, you must take it for them or pay the 50% penalty.  And you must start taking distributions based upon your own life expectancy next year.

4.  If you turned 70 ½ (seventy and one-half) in 2014, you can wait until April 1st, 2015 to take your 2014 RMD.  You must still take your RMD for 2015, so it may not be tax-wise to wait.

5.  If you are self-employed, review your retirement plan options and year-to-date contributions.  You can shelter income with a Simple IRA, SEP-IRA, Individual 401(k), and defined-benefit plan.  Some plans must be in place by the end of the year.  Check with your tax or financial advisor.

6.  Examine your investments.  If needed, rebalance your portfolio.  If you have mutual funds or stocks that you want to sell or replace, look for losses to offset the gains. 

7.  Make your charitable donations now.  If you own an IRA and are over 70 ½ you can instruct your IRA custodian to make a tax-free charitable contribution directly from your IRA.  Hopefully Congress will extend the Qualified Charitable Distribution.  If they don’t, you can still deduct your donation as an itemized deduction.

8.  You can give as much as $14,000 this year and next year to another person without filing a Gift Tax Return.  A married couple can give up to $28,000 per person.  If you give by check, encourage the recipient to cash the check before January 1st so you can prove the gift was made in 2014.

9.  Set up a college savings plan for your grandchild, niece, or nephew. You can contribute up to five years’ worth of $14,000 annual exclusions all at once, for a total of $70,000.  That $70,000 is not taxable as a gift, does not count against your lifetime gift tax exclusion, and will not be included in your estate if you live for five years.

10.  Ask your tax professional if you should pay your state estimated income tax before January 1st so you can deduct the payment on your 2014 federal income tax return.

Kenneth B. Petersen CFP®, EA, MBA, AIFA® is an investment manager and Principal of Monterey Private Wealth, Inc., a Wealth Management Firm in Monterey.   He welcomes questions that you may have concerning investing, taxes, retirement, or estate planning.  Send your questions to: Ken Petersen, 2340 Garden Road Suite 202, Monterey, CA  93940 or email them to