Hurry up! 5 last minute portfolio and tax tips 2014

"We're Running out of time?"

       - Meriadoc "Merry" Brandybuck

That's right with just over one month to go before the end of the year you should go through these five last minute portfolio changes to make sure you are in shape for tax season and the new year!

1. Max Out Your Retirement Accounts

Make sure you are maxing out your IRA contributions if you are eligible. The maximum contribution for 2014 is $5,500 or $6,500 if you are over the age of 50. Rollovers do not count towards this limit. There are income limits so be sure to check if you are eligible. The Roth IRA Limits are listed here. And the Traditional IRA depends on whether you are covered by a retirement plan at work. These rules can be found here. The deadline for making these contributions is April 15th, so while you still have some time don't procrastinate. Get that money working for you!

You can also max out your employer-sponsored retirement plan, if you have access to one. This year’s limit is $17,500, with an additional $5,500 catch-up allowed for those age 50 or older. These limits do not include any employer match.  Unlike IRAs, Contributions to 401(k)s must be made by the end of the calendar year.

2. Turn your traditional IRA into a Roth IRA. 

Have you looked at a conversion? Since Roth IRAs grow tax-free, those who think they’ll be paying a higher tax rate in retirement than they are now could benefit from a conversion of a Traditional IRA to a Roth IRA. There is  no income cap to do a conversion. Keep in mind you will owe taxes but there is no early withdrawal penalty. For most people it makes sense to have both type of savings, tax-free (Roth) and tax-deferred (Traditional) so in retirement you can draw from the different accounts depending on your income level, which tends to fluctuate during retirement.

3. Sell Under-performing Stocks

Last month we wrote about a great strategy to capture your losses for taxes and maintain your exposure to the market. You can read of about this Tax Loss Harvesting Strategy if you have some losses sitting in your portfolio. Regardless of whether you want to employ this strategy you should look at selling your under-performing stocks, mutual funds, and ETFs. This will offset any realized gains you have created throughout the year or if your capital losses exceed your capital gains, the excess can be deducted on your tax return and used to reduce other income, such as wages, up to an annual limit of $3,000.

4. Rebalance your investments. 

We monitor and rebalance our clients' portfolios throughout the year but anyone with money invested in the stock market should review their portfolio and consider rebalancing at the very least once a year, quarterly is ideal. This will make sure you are not taking on too much risk or missing out on returns but not being properly allocated. What is your proper allocation? That depends on your goals and circumstances. 

5. Give a Gift - Either to Family or Charity

The Holidays are the best time to be generous. You can gift family member up to $14,000 without incurring any taxes ($28k if you and your spouse each gift the maximum amount). This however does not provide you with a tax deduction. You can also make charitable contributions which are deductible if you itemize your taxes (schedule A). Remember to keep records to prove both cash and property donations. 

Part of being a client of Phillip James is that we help you with all of this. If you have questions feel free to reach out or if you want need help with your own investments and taxes we'd be happy to meet with you.

Take care and Happy Holidays!