A year-end tax review covers the decisions that have to be finalized by December 31 to count for the current tax year. Once the year closes, most of these options are gone, even though the return itself is not filed until spring.
For Johnson County households, a few of these carry a firm deadline and are worth reviewing while there is still time to act:
- Required withdrawals. For account owners age 73 and older, required minimum distributions (RMDs) from traditional retirement accounts generally must be taken by December 31, and the amount counts as ordinary income for the year.
- Roth conversions. Moving funds from a traditional retirement account into a Roth means paying the tax now, while future qualified withdrawals are generally tax-free. The Roth balance is not subject to RMDs during your lifetime. A conversion is taxed in the year it is completed, so it counts toward this year only if it is done by December 31. The conversion amount is often determined based on the room left in your current-year tax bracket.
- Gains and losses. If you sell an investment at a loss, that loss first offsets any investment gains you realized during the year. If any loss is left over, a limited amount can reduce your ordinary income, and the rest carries forward to future years.
- Charitable giving. How and when a gift is made, including gifts sent directly from a retirement account, can affect how it is counted for the year.
These pieces interact. A required withdrawal can change the room available for a Roth conversion, and a conversion can change how investment gains are taxed. Weighing them together is easier when the person managing your investments and the person handling your taxes are working from the same information, on the same timeline, and on the same team.
That coordination is one reason some families keep financial planning and tax planning under one roof, with check-ins through the year so decisions can be reviewed while options are still open. Planning for the current year alongside the years ahead tends to bring choices into view early enough to use them.
If your plan has been quiet since last spring, fall is a great time to revisit it with whoever helps you with taxes and investing.
This sponsored column is written by Kyle Hogan, CFP®, Financial Advisor at Holistic Planning, a fee-only registered investment advisor with a fiduciary duty, based in Mission, Kansas. Kyle is a member of the Northeast Johnson County Chamber of Commerce. Holistic Planning works with individuals and families on comprehensive financial planning, including integrated tax planning with their in-house tax team. Learn more at holisticplanning.com/kansascity.
Holistic Planning provides investment advisory services through Uptick Partners, LLC, an SEC-registered investment adviser. Registration does not imply a certain level of skill or training. This article is provided for educational purposes only and does not constitute investment, tax, legal, or accounting advice, or a recommendation to buy or sell any security.
