Year-End Financial Moves

Aug 2017


I hate to have to write a column like this at this time of the year; however, when you realize that Labor Day is right around the corner, it is not too early to start thinking about year-end financial moves that you may or may not want to do. I recognize that we still have plenty of time left in 2017; however, we all know how fast time goes by. Therefore, it is not too early to discuss some moves that, if you do them, must be done by the end of the year.

The first issue is whether it makes sense to convert any of your existing traditional IRAs into a Roth IRA. For many people this could be a very positive move from both a tax and financial standpoint.

When someone converts from a traditional IRA into a Roth IRA it is important to remember there is a tax consequence. The money you are converting is subject to ordinary income tax. That obviously is one of the main drawbacks of doing a conversion; you are going to pay taxes on this money. However, it is important to remember that this money would always be subject to income tax, so it’s not like you’re paying a tax that you wouldn’t have to pay in the future. Rather, you’re just paying the tax earlier. The pros of the Roth conversion is that money in a Roth IRA is not subject to required minimum distributions and can remain in the Roth for as long as you choose. In addition, all distributions from the Roth would be tax free. Remember, in a traditional IRA when money is withdrawn it is subject to income taxes; not the case for a Roth.

The rules that I follow in determining whether someone should convert into a Roth or not is as follows: 1) By converting the money it would not throw you into a higher tax bracket. 2) You won’t need the money from the conversion for at least five years. 3) You have the money, without touching any of the money you are converting, to pay the additional tax liability. If you meet these three criteria, a Roth conversion can be an excellent strategy.

One last note on Roth conversions is that they’re available to anyone. Whether you are working or not; whether you’re a high income earner or not, you are eligible for a Roth conversion. Particularly for those who are working in a high tax bracket, a Roth conversion is an excellent strategy to be able to invest money tax free.

For seniors who are over 70½ and required to take a distribution from their IRA, and who are charitable in nature, donating that required minimum distribution may make sense. Particularly for those of you who do not itemize your deductions and who make charitable contributions, a better way than just writing a check is to contribute all or part of your minimum required distribution. The advantage of this is that whatever you donate to charity is not subject to income tax. Therefore, not only would you avoid the income tax, but in addition, it may have a favorable impact in lowering your Medicare payment and the amount of your Social Security subject to tax. Therefore, for seniors who have not yet taken their minimum required distribution for 2017, before you take yours you should consider if donating that distribution to a charity makes sense for you.

Like everything else in this world, things take time. Whether it is a conversion or donating from your IRA, it’s important that you take the time to determine if it makes sense for your individual situation. Obviously, you still have plenty of time before the end of the year to complete these transactions; however, we all know how easy it is to procrastinate. Therefore, if you’re considering either a Roth conversion or donating all or part of your minimum required distribution to a charity, now is a good time to start accumulating the information you need and begin the process to determine if any of these strategies would benefit you. Remember, in any of these strategies it doesn’t matter if 99 percent of the people would benefit, the key is does it make sense for your individual situation.

Good luck!

If you would like Rick to respond to your questions, please email him at