Year-End Elements of Financial Planning | Guest column

Year-End Elements of Financial Planning | Guest column

With the end of the year fast approaching, we remind our clients that now is the time to review key aspects of their finances.

As financial planners, there are some things that we consider very important to most people. Tax planning is always at the top of the list. We encourage clients to review realized gains and losses in taxable investment accounts and, if necessary, take advantage of loss harvesting strategies to reduce net taxable gains.

Estate planning can also be important for many clients. Appropriate gift or transfer strategies should be considered with respect to estate tax management. Using the $15,000 annual gift tax exclusion, available to everyone, can be helpful for many people looking to make tax-free gifts or transfers for estate reduction purposes.

Making charitable donations at year-end can also be helpful in reducing estates as well as income taxes, even with the higher standard deduction amounts. We also encourage clients to assess and maximize contributions to all available qualified retirement plans, such as 401Ks and IRAs, to maximize tax deductions from their contributions. Additionally, for some people, converting some or all of qualified retirement accounts (e.g. IRA, 401K, etc.) to a Roth IRA is worth evaluating whether it makes sense from a tax perspective and /or estate planning.

Another important part of the year-end financial checklist is reviewing your financial plan. We strongly encourage all of our clients to review their plan at least once a year. There are many reasons why an annual plan review is important. It may be beneficial to review the plan annually, as tax and estate issues are usually raised during the review. In addition, an annual review of the plan will cover changes and updates to expenditures, revenue sources, assets and asset management. Disciplined tracking of these elements can make or break a financial plan.

The “year-end” element of planning raises another important aspect of the many benefits a financial plan can provide over time. One of the most important benefits includes enhancing the clarity or assessment of the adequacy of financial resources. In other words, are you on track in terms of your financial resources and expenditures to achieve the objectives of your plan? A financial plan, including an annual review, should impart greatly improved discipline around one’s investments and can help optimize the positioning of one’s financial assets to provide the greatest likelihood of success. Adhering to investing and spending disciplines as part of his plan has been shown to significantly improve the likelihood of achieving his financial goals.

We do a lot of client plan reviews towards the end of the year. It’s a great way for most people to step into the new year with confidence. It’s never too late to start a financial plan and never too early. Waiting is the worst decision, especially if one has specific financial concerns, apprehensions, or problems that could be resolved with a comprehensive financial plan.

Robert Toomey, CFA/CFP, is vice president of research for SR Schill & Associates on Mercer Island.