The end of the year is fast approaching and now is the perfect time to review items you might want to consider as you get set to enter 2017. Many of the IRS publications referenced below reference tax year 2015. Changes are not anticipated when 2016 guides are published.

Before we get started, let’s stress that it is our job to assist and help you! We can’t over- emphasize this, and we would be happy review the options that are best suited to your situation. When it comes to tax matters, we recommend you check with your tax advisor.

Investment and financial planning

• Review your income or portfolio strategy. Are you reaching a milestone in your life such as retirement or a change in your circumstances? Has your tolerance for taking risk changed? If so, this may be the right time to evaluate your approach.

• Take stock of changes in your life and review insurance and beneficiaries. Let’s be sure you are adequately covered. At the same time, it’s a good idea to update beneficiaries if the need has arisen.

Tax planning

• Consider tax reform. The possibility of tax reform looms large over 2017. What shape it will take and how it may affect a various array of investments and tax-deferred accounts is unknown. While headlines suggest terms will be more favorable, the devil is in the details.

Furthermore, Republicans have long wanted to kill the estate tax. And Donald Trump has said he would like to repeal the gift tax. Until Congress passes the appropriate legislation, estate and tax planning in general will be a murky endeavor.

• Be savvy when it comes to mutual funds and taxable distributions. This is best described using an example. If you buy a mutual fund on December 15 and it pays a dividend and capital gain on December 17, you will be responsible for reporting the entire distribution, even if that distribution covers the entire year.

Following that payment, the net asset value of the fund will fall by the amount of the distribution, yet your investment in the fund remains the same.

That’s a tax sting best avoided, so it may be a good idea to wait until after the annual distribution to make the purchase.

• Take Required Minimum Distributions (RMDs). RMDs generally are minimum amounts that a retirement plan account owner must withdraw annually starting with the year he or she reaches 70½ years of age or, if later, the year in which he or she retires. (IRS Retirement Plan and IRA Required Minimum Distributions FAQs)

However, the first payment can be delayed until April 1 of the year following the year in which you turn 70½. For all subsequent years, including the year in which you were paid the first RMD by April 1, you must take the RMD by December 31 of the year.

The RMD rules also apply to 401(k), profit-sharing, 403(b), 457(b) or other defined contribution plans as well as SEP IRAs and Simple IRAs.

Don’t miss the deadline or you could be subject to steep penalties.

• Contribute to a Roth IRA. A Roth gives you the potential to earn tax-free growth (not just deferred tax-free growth) and allows for federal tax-free withdrawals if certain requirements are met. There are income limits, but if you qualify, you may contribute $5,500 or $6,500 if you are 50 or older. (IRS Retirement Topics – IRA Contribution Limits)

If you satisfy the requirements, qualified distributions are tax-free. You can make contributions to your Roth IRA after you reach age 70½ and there are no requirements to take mandatory distributions.

You may also be eligible to contribute to a traditional IRA, and contributions may be fully or partially deductible, depending on your circumstances. The same contribution limit that applies to a Roth IRA also applies to traditional IRAs. Total contributions for both accounts cannot exceed the prescribed limit.

You can make 2016 IRA contributions until April 17, 2017. (Note: state holidays can impact final date.)

• Consider converting a traditional IRA to a Roth IRA. There are a number of items you may want to consider, including current and future tax rates as well as the potential for tax reform next year, but if the situation is right, it can be advantageous to convert to a Roth IRA.

• Think about college savings. Explore the advantages of a 529 college savings plan for your child or a grandchild.

Earnings are not subject to federal tax and generally not subject to state tax when used for the qualified education expenses of the designated beneficiary. Contributions, however, are not deductible.

A second but more limited option includes a Coverdell Education Savings Account (IRS Publication 970). Total contributions for a beneficiary of this account cannot be more than $2,000 in any year. Any individual (including the designated beneficiary) can contribute to a Coverdell ESA if the individual’s modified adjusted gross income for the year is less than $110,000. For individuals filing joint returns, that amount is $220,000.

Contribution limits get phased out after hitting the respective limits.

• Look into an Achieving a Better Life Experience (ABLE) account. This is a newer savings account for individuals with disabilities and their families. For 2016, you can contribute up to $14,000. Distributions are tax-free if used to pay the beneficiary’s qualified disability expenses, which may include education expenses (IRS Publication 970, Ablenrc.org).

• Focus on charitable giving. Whether it is cash, stocks or bonds, you can donate to your favorite charity by December 31, potentially offsetting any income.  

Did you know you may qualify for what’s called a “qualified charitable distribution?” A QCD is an otherwise taxable distribution from an IRA (other than an ongoing SEP or SIMPLE IRA) owned by an individual who is age 70½ or over that is paid directly from the IRA to a qualified charity. The IRA owner must be at least 70½ when the distribution is made.

Thanks to the Protecting Americans from Tax Hikes (PATH) Act of 2015, this has become a permanent feature in the tax code (assuming Congress doesn’t tinker with the law), but specific conditions must be met.

You might also consider a donor-advised fund. Once the donation is made, you can realize immediate tax benefits, but it is up to the donor when the distribution to a qualified charity may be made.

We hope you’ve found this review to be educational and helpful, but it is not all- encompassing. Once again, before making any decisions that may impact your taxes, please consult with your tax advisor.

Market check-in: Investors dance to the Trumpet

What is supposed to happen and what actually happens do not always correlate. Donald. Trump will soon be our president. A Trump win was supposed to shake markets, given all the uncertainty surrounding his incendiary rhetoric and vague policy proposals. Hillary Clinton represented continuity, even if her platform wasn’t always viewed as business friendly.

Well, stocks crumbled in overnight trading (primarily accessed by professionals, not individual investors) as the vote count signaled a Trump win. On Wednesday, stocks closed sharply higher. Soon, the major indexes would hit new highs.

Conciliatory speeches by The Donald and Hillary seemed to soothe nerves. But markets quickly turned to the fundamentals, and prospects that a Republican Congress and a Republican president would enact pro-business and pro-growth measures forced a sharp shift in sentiment.

Talk of higher infrastructure spending, a cut in the corporate tax rate and cuts in individual tax rates were viewed as positives. Yes, it’s early and nothing is set in stone, but economic stimulus that is expected to boost the economy and profits pushed the major indices to new highs.

However, the prospect of higher deficit spending, and with it, the possibility that inflation could tick higher, have taken a big toll on Treasuries and investment-grade bonds.

How a Trump presidency will unfold is up for debate. But the unexpected reaction in stocks is a good example of how even the savviest market-timing strategies don’t always play out as expected.

Table 1: Key Index Returns

 
Source: Wall Street Journal, MSCI.com,MTD returns: Oct. 31, 2016—Nov. 30, 2016
YTD returns: Dec. 31, 2015—Nov. 30, 2016, *Annualized, **in U.S. dollars