9 Smart Planning Moves to Consider

by Michele Von Hoven, RICP, RFC, IAR,NP, Fiduciary Financial & Investment Adviser



1. Review your Portfolio Strategy or Income Strategy

Are you reaching a milestone in your life such as retirement or a change in your personal circumstances? Has your tolerance for taking risk changed? If so, let’s make adjustments to your financial plan.


When stocks tumble, some investors become very anxious. When stocks post strong returns, others feel invincible and are ready to load up on riskier assets.

Remember, the financial plan is your roadmap to your financial goals. It is designed to remove the emotional component that may encourage us to buy or sell at inopportune times. In other words, be careful about making portfolio decisions based solely on market action.

Long-term academic data and my own personal experience tell me that the shortest distance between an investor and his/her financial goals is adherence to a well-diversified and designed holistic financial plan.

When you have a plan it can reduce stress!


2. Rebalance Your Portfolio

Stocks have performed well this year. We may need to trim back on equity exposure. However, we may want to wait until January in non-retirement accounts so that any gains are booked in tax year 2022.


3. Take stock of changes in your life

Think about what has changed over the course of the past year 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.


4. Note the Tax Loss Deadline

You have until December 31 to harvest any tax losses and/or offset any capital gains. It may be advantageous to time sales in order to maximize tax benefits this year or next. We may also want to book gains and offset with any losses.

But be aware that short- and long-term capital gains are taxed at different rates. And don’t run up against the wash-sale rule (see IRS Publication 550), which could disallow a capital loss.

A wash sale occurs when you sell a security at a loss and then purchase that same security or “substantially identical” securities within 30 days, either before or after the sale date (A Primer on Wash Sales).

Did you know that you pay no federal taxes on a long-term capital gain if you reside in the 10% or 12% federal income tax bracket? It may be worth harvesting a long-term capital gain. In other words, you may sell the stock, take the profit and pay no federal income tax.

But be careful.

The sale will raise your adjusted gross income, which means you’ll probably pay state income tax on the long-term gain. By raising your AGI, you could also impact various tax deductions or receive a smaller ACA premium tax credit if you obtain your health insurance from the Marketplace.

5. Mutual Funds and Taxable Distributions

This is best described using an example: If you buy a mutual fund on December 15 and it pays its annual dividend and capital gain on December 20, you will be responsible for paying taxes on the entire yearly distribution, even though you held the fund for just five days.

It’s a tax sting that’s best avoided because the net asset value hasn’t changed. It’s usually a good idea to wait until after the annual distribution to make the purchase.

6. Pay RMDs -Required Minimum Distributions

As you know, required minimum distributions, or RMDs, are minimum amounts the owner of most retirement account must withdraw annually.


The SECURE Act made major changes to RMD rules. If you reach age 70½ in 2020 or later, you must take your first RMD by April 1 of the year after you reach 72 (IRS: Retirement Plan and IRA Required Minimum Distributions FAQs). Some plans may provide exceptions if you are still working (for IRA FAQs: Required Minimum Distributions).

If you reached the age of 70½ in 2019 the prior rule applies.

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.

While delaying the RMD until April 1 can cut your tax bite in the current year, please be aware that you’ll have two RMDs in the following year, which could bump you into a higher tax bracket.

The RMD rules apply to all employer-sponsored retirement plans, including profit-sharing plans, 401(k) plans, 403(b) plans, and 457(b) plans. The RMD rules also apply to traditional IRAs and IRA-based plans such as SEPs, SARSEPs, and SIMPLE IRAs.

They do not apply to ROTH IRAs.

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

7. Contribute to a Roth or Traditional 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.

You may also be eligible to contribute to a traditional IRA. Contributions may be fully or partially deductible, depending on your income and circumstances. Total contributions for both accounts cannot exceed the prescribed limit.

There are income limits, but if you qualify, the annual contribution limit for 2020, 2021, and 2022 is $6,000, or $7,000 if you’re age 50 or older.

You can contribute if you (or your spouse, if filing jointly) have taxable compensation. You can contribute to a spousal IRA too, for a non-working spouse.

Starting in 2020 and later, there is no age limit on making regular contributions to traditional or Roth IRAs.

As of now, you can make 2021 IRA contributions until April 15, 2022 (Note: statewide holidays can impact final date).

8. Set up College Savings

A limited option called the Coverdell Education Savings Account (ESA) allows for a maximum contribution of $2,000. It must be made before the beneficiary turns 18. Contributions are not tax deductible.

Distributions are tax free if used for qualified education expenses. But beware of income limits (IRS: Coverdell Education Savings Accounts).

Contribution limits are phased out if the contributor has an AGI of $95,000 to $110,000. For joint filers, the AGI is between $190,000 to $220,000.

A 529 plan allows for much higher contribution limits, and earnings are not subject to federal tax when used for the qualified education expenses of the designated beneficiary.

As with the Coverdell ESA, contributions are not tax deductible.

9. Complete Charitable Giving

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