planning-240px-521703656One of the best times to pause and review your financial planning strategy is Fall. A lot can happen in a year. You may need to revise your long-term financial plans if your personal life, market conditions or tax laws have changed. Here are some retirement and estate planning considerations that may be worthwhile.

Roth IRAs

There are some key differences between traditional and Roth IRAs. Roth IRAs can be an effective retirement-saving tool for people who expect to be in a higher income tax bracket when they retire. Here’s how it typically works.

You open up a Roth IRA and make after-tax contributions. The tax savings come during retirement: You don’t owe income taxes on qualified Roth withdrawals. Unlike traditional IRAs, there’s no requirement to start taking annual required minimum distributions (RMDs) from a Roth account after reaching age 70 1/2. Therefore, you can leave as much money in your Roth account as you wish for as long as you wish. This important privilege allows you to maximize tax-free Roth IRA earnings, and it makes the Roth IRA a great asset to leave to your heirs (to the extent you don’t need the Roth IRA money to help finance your own retirement).

The maximum amount you can contribute for any tax year to any IRA, including a Roth account, is the lesser of:

1. The annual IRA contribution limit for that year. For 2016, the annual IRA contribution limit is $5,500, or $6,500 if you’ll be age 50 or older as of year end, or

2. Your earned income for that year.

Married couples can make annual contributions to separate IRAs as long as there is sufficient earned income. For this purpose, you can add your earned income and your spouse’s earned income together, assuming you file jointly. As long as your combined earned income equals or exceeds your combined IRA contributions, you’re both good to go.

However, there is a phaseout rule that affects high-income individuals, and your ability to make annual Roth contributions may be reduced or eliminated. But you may be able to circumvent this rule by making an annual nondeductible contribution to a traditional IRA and then converting the account into a Roth IRA. In this indirect fashion, high net worth individuals can make Roth contributions of up to $5,500 if they’re under age 50 or up to $6,500 if they’re at least 50 and younger than 70 1/2 as of the end of the year. (Once you hit 70 1/2, you become ineligible to make traditional IRA contributions, and that shuts down this strategy.)

If you’re married, you can double the fun by together contributing up to $11,000 or up to $13,000 if you’re both at least 50 (but under age 70 1/2). There are various rules and restrictions to using this strategy, and it may be less advantageous if you have one or more existing traditional IRAs. So, consult with your tax advisor before attempting it.

Self-Directed IRAs

Investment options in a typical IRA are expanded with the self-directed IRA. For instance, with a self-directed IRA you may be able to include such alternatives as real estate, hedge funds and even equity interests in private companies. These types of investments often offer higher returns than traditional IRA investment options.

But self-directed IRAs aren’t a free-for-all. The tax law prohibits self-dealing between an IRA and “disqualified” individuals. For example, you can’t lend money to your IRA or invest in a business that you, your family or an IRA beneficiary controls. The consequences for self-dealing can be severe, so consult with your financial advisor before making the switch.

Deductible Losses on Underperforming Stocks

If you own stocks and other marketable securities (outside of your retirement accounts) that have lost money, consider selling losing investments held in taxable brokerage firm accounts to lower your 2016 tax bill. This strategy allows you to deduct the resulting capital losses against this year’s capital gains. If your losses exceed your gains, you will have a net capital loss.

You can deduct up to $3,000 of net capital loss (or $1,500 if you are married and file separately) against ordinary income, including your salary, self-employment income, alimony and interest income. Any excess net capital loss is carried forward to future years and puts you in position for tax savings in 2017 and beyond.

Gifts of Appreciated Assets

Let’s say you own stocks and other marketable securities (outside of your retirement accounts) that have greatly increased in value since they were acquired. Taxpayers in the 10% or 15% income tax brackets can sell the appreciated shares and take advantage of the 0% federal income tax bracket available on long-term capital gains. Keep in mind, however, that depending on how much gain you have, you might use up the 0% bracket and be subject to tax at a higher rate of up to 20%, or 23.8% when considering the Medicare surcharge that may apply.

Since your tax bracket may be too high to take advantage of the 0% rate, consider gifting assets to sell to your loved ones if they are in lower tax brackets. It’s important to note that gains will be considered long-term if your ownership period plus the gift recipient’s ownership period equals at least a year and a day.

Giving qualified-dividend-paying stocks to family members eligible for the 0% rate is another tax-smart idea. But before making a gift, consider the gift tax consequences.

The annual gift tax exclusion is $14,000 in 2016 (the same as 2015). If you give assets valued at more than $14,000 (or $28,000 for married couples) to an individual during 2016, it will reduce your $5.45 million gift and estate tax exemption — or be subject to gift tax if you’ve already used up your lifetime exemption. Also keep in mind that if your gift recipient is under age 24, the “kiddie tax” rules could potentially cause some of his or her capital gains and dividends to be taxed at the parents’ higher rates.

Charitable Donations

A powerful tax-savings tool to consider is charitable donations because you’re in complete control of when and how much you give. No floor applies, and annual deduction limits are high (20%, 30% or 50% of your adjusted gross income, depending on what you’re giving and whether a public charity or a private foundation is the recipient).

If you have mutual fund shares or appreciated stock that you’ve owned for more than a year, consider donating them instead of cash. You can generally claim a charitable deduction for the full market value at the time of the donation and avoid any capital gains tax hit.

Don’t donate stocks to charity if you own ones that are worth less than you paid for them. Instead, sell the stock and give the cash proceeds to a charity. You can generally deduct the full amount of the cash donation while keeping the tax-saving capital loss for yourself if you go this route.

Life Changes

Have there been any major changes in your personal life, such as a death in the family, recent marriage or divorce, or the birth or adoption of a new child? If so, you may need to update your will and power of attorney documents, as well as revise the beneficiaries on your retirement accounts and life insurance policies.

Life changes can be stressful, and it’s very common for these administrative chores to be overlooked. But failure to update financial plans and legal documents can lead to unintended consequences later on, either when you die or if you become legally incapacitated and need someone else to make certain decisions on your behalf.

Family-Owned Businesses

For many years now, proactive taxpayers have used family limited partnerships (FLPs) and other family-owned business entities in estate planning. These estate-planning tools allow high net worth individuals to transfer their wealth to family members and charities at a substantial discount from the value of entities’ underlying assets, if properly structured and administered. Examples of assets that may be contributed to an FLP include real estate, private business interests and marketable securities.

Important Note. The FLP must be set up for a legitimate purpose (such as protecting assets from creditors and professional-grade asset management) to preserve valuation discounts.

Valuation discounts on FLPs relate to the lack of control and marketability associated with owning a limited partner interest. These interests are typically subject to various restrictions under the partnership agreement and state law.

In various Tax Court cased, the IRS has targeted FLPs and other family-owned businesses. To strengthen its position in court, the IRS issued a proposal in August that could significantly reduce (or possibly eliminate) valuation discounts for certain family-owned business entities. Among other changes, the proposal would add a new category of restrictions that would be disregarded in valuing transfers of family-owned business interests.

There still may be time to use these estate-planning tools and be grandfathered in under the existing tax rules, because if finalized, the proposed changes won’t go into effect until 2017 (at the earliest). If you’ve been considering setting up an FLP or transferring additional interests in an existing one, it may be prudent to act before year end.


These are just a handful of financial issues to consider at year end. Filler & Associates or your financial and legal advisors can run through a more comprehensive checklist of planning options based on your personal circumstances.