Dec 21, 2018 3 min read

There are a number of important financial matters you should consider before Dec. 31.

If you are older than 70½, you should check whether you have met the required minimum distribution from your qualified money. Qualified money includes IRAs, 401(k)s and other retirement funds.

You got a tax deduction when you contributed and you pay ordinary income tax rates on the money when you receive it. To make sure it gets this tax, the Internal Revenue Service has a schedule of required minimum distributions you must take every year. The penalty for failing to do so is severe: 50 percent of the required amount, plus ordinary tax on the entire required withdrawal. This could be as high as 80 percent.

Before the end of the year is the best time to do other tax planning. Our tax system is progressive, meaning rates increase along with income. If you are in the 22 percent tax bracket, you do not pay that rate on every dollar you earn, only on dollars above a certain threshold. That means some of your income is tax free, because of personal exemptions and deductions. Some of your earnings are taxed at 10 percent, some at 12 percent.

You pay only the 22 percent on income exceeding a certain level.

If you have additional qualified money you will have to spend during retirement, you may want to pull extra out and pay taxes at 22 percent if you will never be in a lower-income tax bracket. This is called bumping the bracket because you take out as much as you can before reaching the next bracket at 24 percent.

If you itemize on your return, you may be able to save some taxes by making a charitable contribution before Dec. 31. This may be a good time to sell some of your stock winners if you have some losing stocks to offset the gains. Be careful not to commingle short-term and long-term gains and losses. They are taxed differently. Long-term gains are holdings you had for at least one year and a day.

You also must be careful not to violate the wash rule. That is when you sell a losing stock and buy back the same one within 30 days.

This is a good time to review your portfolio and maybe rebalance your asset allocations. This could be when one sector grew much faster than some others. You also may want to lock in some of your market gains. Depending on income and other considerations, it may make sense to do a Roth conversion or put more money into an IRA if you are allowed.

This also may be a good time to get some of your money out of the stock market. The market has become very volatile and money you need to spend in the next couple of years should not be in the stock market. This is especially important for people who are near retirement or anyone who retired in the last couple of years.

Big stock market losses near the beginning of retirement could ruin what you worked your whole career to achieve.

I hope you and your family have a great holiday season.

Gary Boatman is a Monessen-based certified financial planner and author of “Your Financial Compass: Safe passage through the turbulent waters of taxes, income planning and market volatility.”

To submit columns on financial planning or investing, email Rick Shrum at rshrum@observer-reporter.com.