By Michelle Best, Scottrade Branch Manager
It's year-end planning time again. In farming communities, this means that even though the harvest is over, there's still work to be done to prepare for next year. This same approach of harvesting and preparation can be used when reviewing your investment accounts.
1. Harvest Potential Investment Gains and Losses
Harvesting gains and losses is a way to offset your profits versus losses from investments that have not met your expectations. Using this method could potentially provide you with income to choose new investments that may meet your investment goals. For example, say you purchased two stocks during the year, anticipating a 10% return. One stock returned 12%, and the other stock lost 10%. If you sell both stocks, you could realize your profit on the first stock and possibly offset the taxable gain by selling the stock that didn't perform.
2. Evaluate Worthless Securities
Consider removing the “worthless securities” from your accounts. In a taxable account, you can opt to remove a worthless security by submitting a request form to your local Scottrade team. There is a charge for this option; it is up to you to decide if it is the right move for you.
3. Gifting Stock
You can gift stock or donate appreciated securities for charity contributions. Most charities maintain brokerage accounts to accept your stock gift; contact the charity for their account instructions. Gifting appreciated stock may allow you to support your favorite cause—but be sure you check with your tax advisor first.
4. Review Your Investment Returns
Assess the return on your investments to see if they have met your criteria for returns. The standard formula for calculating this is to take what the investment is worth now plus your dividends; subtract your initial investment and divide the difference into your original investment to obtain your return percentage. Scottrade's Gain Loss & Tax Center will help calculate your return, but does not include your dividends.
5. Don't Forget About Your Required Minimum Distribution
If you're 70 ½ or older, you are required by the IRS to take distributions from your qualified plans and IRAs. If you do not take out your required minimum, you can be subject to a 50% penalty from the IRS. Your minimum distribution is based on your age and the year-end balance of your IRA. For more information, visit www.IRS.gov.
If you have inherited an IRA you may need to take a minimum distribution depending on your choice when receiving the inherited IRA. Inherited IRAs are different from your regular IRA account. To learn more about this, read Inherited IRAs.
6. Evaluate Your Retirement Contributions
If you're not contributing the maximum to your qualified and individual retirement plans, you may want to consider working with your budget to see if you can squeeze out some additional savings and channel those funds to your retirement accounts. You can also set up automatic contributions so you pay yourself first to help grow those savings.
7. Consider Consolidating Accounts
Consider consolidating your accounts with Scottrade to take advantage of our low commissions, transparent pricing, local branch offices and extensive research and education. Scottrade clients may find they save money and time by consolidating and working with their local Scottrade team to help with their financial plan.
Scottrade does not provide tax advice. The material provided in this article is for informational purposes only and Scottrade is not responsible for any errors or omissions. Contribution and income limits are subject to change without notice. Please consult your tax, or legal, advisor for questions concerning your personal tax or financial situation.