3 Key Considerations for Year-End Financial Planning

Investors should review their portfolios and retirement accounts in between sips of eggnog.

It's not hard to get caught up in the excitement of holiday parties, gift-giving and winter vacations, to name just a few of the things that make the holiday season my favorite time of year. 

Amid all of the festivities, we like to remind clients that December is not too late to talk about end-of-year financial planning. If you haven't yet, pour yourself a cup of hot chocolate and sit down with your financial advisor. Among the topics you may wish to discuss:

Investing. The end of the year presents a good opportunity to review your financial portfolio and determine whether your asset allocation is still appropriate. It's normal to have some anxiety during this process, especially after a year as volatile as the last one. During times of volatility, we remind clients to remain focused on their long-term goals.

Investors need to remember that making drastic changes to a portfolio during times of volatility is risky and can result in locking in losses. Instead, investors should ride out the volatility whenever possible. Through our research on markets and economic conditions, we are selecting equity opportunities that are likely to be resilient in 2016 and beyond. For instance, the divergence in global monetary policy is likely to create value opportunities in the financial services sector.

To bolster after-tax returns, investors should also talk to their advisors about harvesting tax losses. Tax-loss harvesting is particularly useful in periods of market volatility. The practice involves selling an underperforming stock and re-allocating investment into a highly correlated area. The losses realized by selling the initial stock down can be used to offset taxable income at year's end. To avoid violating the IRS wash sale rule, be sure you haven't purchased the holding within the last 30 days and wait at least 30 days after the sale before buying it back.

Retirement planning. It's important to regularly evaluate your retirement plans and consider reallocating investments or increasing contributions. Baby boomers and Gen Xers who are not on track should consider deferring more to their plans, even if that requires trimming living expenses. Investors 50 or older should consider making catch-up contributions to their IRAs or 401(k)s. Millennials are often more focused on kick-starting their careers and paying off student loans, but they should also start saving for retirement as early as possible.

Those who are 70.5 and older need to make required minimum distributions from traditional IRAs and other tax-advantaged accounts. Failure to take an RMD can result in significant penalties and taxes. Roth IRAs are generally not subject to these rules.

Adults of any age should be sure to contribute to tax-advantaged retirement accounts, such as IRAs or a 401(k). Many employers match contributions made towards 401(k) plans, but surprisingly, many employees don't take advantage of that benefit. Similarly, there's still time left to contribute to other tax-advantaged savings vehicles, such as health savings accounts for medical expenses or 529 plans for higher education.

Estate planning and charitable giving. It's never pleasant to talk about estate planning, but these conversations are important to have. Many people falsely believe that a will is a "set it and forget it" type of document, but that is unfortunately not the case. It's important to review wills and other estate planning documents periodically and identify any changes related to your health, finances and relationships. Any new marriages, children or grandchildren that were added last year should be documented.

In the true spirit of Thanksgiving, Christmas and other winter holidays, those who can afford to help the less fortunate should do so. With so many nonprofits doing great work, it can be hard to select one to donate to. A good starting point for this research is GuideStar, which provides data on about 1.8 million IRS-recognized tax-exempt organizations, as well as thousands of faith-based organizations.

The tax benefit is a great incentive, so make sure the charity you choose is a qualified organization. Also, many employers match charitable contributions, so check with your employer and obtain any paperwork that may be necessary for gift-matching or tax purposes.

Enjoy celebrating this time of year with the ones you love. With a little bit of planning, ringing in 2016 can be a financial celebration, as well.