Year End Financial Checklist

It’s been a mostly cooperative year so far for investors.  Driven by tax cuts, record corporate earnings and a strong yet steady economy, domestic markets are hovering near all-time highs.  In fact, this summer marked the longest bull market ever for the S&P 500.  Since March 2009 the market has marched mostly upward, recording over nine years without a 20% pull back (a 20% fall is known as a bear market).  On average, bear markets occur about once every six years, so from a historical perspective the market seems overdue for a breather, but it is often said that bull markets don’t die of old age.  Recessions have generally been the best predictor of such pull backs, and with unemployment near 50-year lows, most economists agree that a recession is not around the corner.

Given that markets have lifted asset values to all-time highs and given that many people measure the progress of their financial planning efforts by their account values, we thought a reminder that the market can’t always do the “heavy lifting” would be timely.  Most analysts are predicting more modest returns for stocks and bonds in the near term, and of course predicting when the next bear market will arrive is a fool’s errand.

While long-term capital market returns are major contributors towards enabling us to reach our financial goals, many other factors – that we have more control over – go into creating a successful financial plan.  Our ability to save, spend within our means, use tax strategies, and protect against risk and the unexpected play an arguably more important role than squeaking out another percent or two.  Yet, according to research by Charles Schwab, people spend more time planning their vacations than they do planning for retirement.  Given this, we thought the following year-end check list would be a useful guideline for items to review before December 31.

1. 401(k) – Does your employer offer a 401(k) and should you be taking advantage of it? The maximum contribution for 2018 is $18,500 or $24,500 if you are 50+ years old. If you are enrolled in your company’s plan you can find the current year-to-date contribution amount on your pay stub. Given your circumstances, you might want to adjust the amount to get to the maximum by year end. Keep in mind that many companies now offer a Roth 401(k) option, which might be a more attractive alternative depending on your circumstances.

2. Self Employed? - There are a variety of retirement plan strategies that offer attractive deductions for self-employed individuals as well as those who run small businesses. These plans range from from 401(k)’s to Defined Benefit Plans. While deposits for most plans don’t have to be made by year-end, paperwork must be signed and in place by December 31st.

3. 529 College Savings Plan – Have you begun to plan for your children or grandchildren’s higher education expenses? Many states, like New York, allow a state income tax deduction on contributions to in-state 529 plans, and those contributions must be made by year-end. In New York, a married couple can deduct up to $10,000 ($5,000 per person) in contributions made to in-state plans. Of course, you can always contribute more to the plan if desired.

4. Required Minimum Distributions, aka “RMDs” – Are you over 70 ½, or have you inherited IRA assets from someone other than your spouse? If so, you will need to take an annual distribution that is mandated by the IRS. Failure to take care of this is costly – a 50% penalty is imposed, in addition to the scheduled tax. You may want to consider setting up an annual or monthly automatic payment plan beginning in 2019 so that each year this will automatically be in place.

5. Consider Converting Your IRA to a Roth IRA - Depending on your situation, it might be time to consider transitioning from a traditional IRA to a Roth IRA. A lower tax bracket caused by lower income, business losses, or the change in tax law might make this an attractive move. Converting your IRA to a Roth today means that you will have to pay income tax on the amount you convert, but when it comes time, the future withdrawals will be tax free for both you and your beneficiaries. Roth IRA’s do not require you to take distributions at age 70 ½.

6. Review Life Insurance and Disability Policies – Employers change coverages often, and a variety of life events may warrant changes such as increasing expenses, changes in income or employment, a growing family, or the purchases of a new home.

7. Charitable Contributions – Changes in tax laws earlier this year may impact your ability to take a deduction on charitable contributions, so be sure to check with your CPA to determine if you will be itemizing or taking the standard deduction. If tax benefits are an important factor when contributing to your favorite charitable causes, consider a Donor Advisor Fund where you can contribute a larger sum now (perhaps qualifying you for the deduction) and give out money from the account over time. Also consider donating investments that might have appreciated over time rather than cash to avoid paying capital gains tax. Most charitable and religious organizations will happily accept shares of stock or mutual funds.

8. Estate Planning Documents – These items typically include a Last Will and Testament, Living Will, Power of Attorney and health care proxy. Such items ensure that upon your passing, your assets go where you want them to under the terms and conditions that you set forth.  Review key figures like your Executor, trustee, and care givers if children are involved.  A Living Will and health care proxy will be required to outline the medical procedures you approve of for yourself and authorize someone to carry forth those instructions.  Do you know where these documents are stored? Are they in a safe place and accessible?

9. Check your beneficiaries – IRA’s, life insurance, annuities, 401(k)’s and other types of pension plans by-pass the probate process and go straight to the named beneficiary on file. Depending on the state you live in, many other accounts (i.e. investment accounts) can be set up to go directly to the beneficiary upon the passing of the account owner without having to go through the courts.  Keep in mind that if minors inherit assets a court will appoint someone to oversee the assets until they become adults, unless the proper language and trusts are including in your will.

10. HSA Accounts – If you have a high deductible health plan (check with your employer) you can open a Health Savings Account. The tax-deductible contribution limit for 2018 is $3,450 for self-only coverage and $6,900 for family coverage.  Those who are 55+ years old can contribute an additional $1,000. Any unused amounts can be rolled over into the next year, and even eventually used in retirement. Contributions must be made by December 31^st.

11. FSA (Flexible Spending Account) - Offered by some employers, these plans allow you to contribute $2,650 on a pre-tax basis to an account that can be used for things like unreimbursed medical expenses and eye exams. Unlike HSA’s, it is possible that if the funds are not used, they can be lost so be sure to check with your employer about your company’s “use it or lose it” rules.

12. Gifting – The annual gift tax exclusion for 2018 is $15,000. This is the amount that you can gift to another person (married couples can gift $30,000) without having to pay gift tax. Gifts must be made by year-end and can be made in the form of highly appreciated stocks or mutual funds.  Gifting is a common strategy that is used to reduce estate taxes and to fund trusts.

13. Credit Reporting – Take advantage of getting your free credit report. You are entitled to a free copy of your credit report once every 12 months from each credit reporting company and can obtain it online at annualcreditreport.com.

Another study by Mass Mutual found that Americans spend more time planning and purchasing gifts for the holidays than they do on retirement planning.  So, as the holiday season approaches consider investing some time in yourself and your future.  Of course, we are eager to help give you the peace of mind that having an organized plan can provide, so please feel free to lean on us. We are happy to speak with your CPA and/or Attorney (or can recommend either) to create a coordinated effort.  As Gandhi said, “The future depends on what we do in the present.”

Written by Robert C. Votruba, Ph.D., Director of Investments, National Financial Network LLC. Registered Principal and Financial Advisor of Park Avenue Securities LLC (PAS), 990 Stewart Avenue, Suite 200. Garden City, NY 11530. Securities products and advisory services are offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America (Guardian), New York, NY. PAS is an indirect, wholly owned subsidiary of Guardian. National Financial Network LLC is not an affiliate or subsidiary of PAS or Guardian.
Opinions expressed herein are not necessarily those of Guardian or Park Avenue Securities. Data and rates used were indicative of market conditions as of the date shown. Opinions, estimates, forecasts, and statements of financial market trends are based on current market conditions and are subject to change without notice. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer, or recommendation to purchase or sell a security.
Data Source: FactSet

S&P 500 Index is a market index generally considered representative of the stock market as a whole. The index focuses on the large-cap segment of the
U.S. equities market. Indices are unmanaged and one cannot invest directly in an index. Each company’s security affects the index in proportion to its market value. NASDAQ Composite Index is a market value-weighted index that measures all NASDAQ domestic and non-U.S. based common stocks listed on the NASDAQ stock market. Dow Jones Industrial Average is a widely-used indicator of the overall condition of the stock market, a price-weight- ed average of 30 actively traded blue chip stocks, primarily industrials, but also includes financial, leisure and other service oriented firms. Data and rates used were indicative of market conditions as of the date shown and compiled by briefing.com. Opinions, estimates, forecasts, and statements of financial market trends are based on current market conditions and are subject to change without notice. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer, or recommendation to purchase or sell a security. Past performance is not a guarantee of future results. Russell 2000 Index measures the performance of the smallest 2,000 companies in the Russell 3000 Index of the 3,000 largest U.S. companies in terms of market capitalization. MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. Chicago Board Options Exchange Volatility Index (VIX) tracks the expected volatility in the S&P 500 Index over the next 30 days. A higher number indicates greater volatility.

The S&P MidCap 400 provides investors with a benchmark for mid-sized companies. The index seeks to remain an accurate measure of mid-sized companies, reflecting the risk and return characteristics of the broader mid-cap universe on an on-going basis. The Wilshire 5000 Total Market Index represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data.

The Wilshire 5000 Total Market Index, or more simply the Wilshire 5000, is a market-capitalization-weighted index of the market value of all stocks actively traded in the United States.The S&P SmallCap 600® measures the small-cap segment of the U.S. equity market. The index is designed to track companies that meet specific inclusion criteria to ensure that they are liquid and financially viable. The Nasdaq 100 Index is composed of the 100 largest, most actively traded U.S companies listed on the Nasdaq stock exchange.

Park Avenue Securities LLC (PAS) is an indirect, wholly-owned subsidiary of The Guardian Life Insurance Company of America (Guardian). PAS is a registered broker/dealer offering competitive investment products, as well as a registered investment advisor offering financial planning and investment advisory services. PAS is a member of FINRA and SIPC.

Guardian, its subsidiaries, agents, and employees do not provide tax, legal or accounting advice.  Consult your tax, legal or accounting professional regarding your individual situation.

2018-68052 Exp 10/2020