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Before End-of-the-Year Investment Advice

With the approaching of the end of the year many mutual fund issues that you should deal with arise. This article outlines the main investment matters you should take care of. It deals with such issues as fund distributions, 401(k) obstacles, capital gains to be offset by losses, the paperwork and etc.

Important Investment Matters

  1. Required Minimum Distributions (RMDs)

    If your mutual fund includes RMD, you should subtract it annually. This is done for those that are 70.5 and older.

  2. 401 (k) Inputs

    One way to decrease your mutual fund taxes you should pay at the end of the year is by increasing your contributions to your 401 (k) plan. Have in mind that there are certain limitations to the amount you can contribute, so check how much it is and try not to exceed it.

  3. Year-End Mutual Fund Distributions

    Purchasing a mutual fund at the end of the year may lead to a taxable event. Therefore it is not a good idea to buy a mutual fund at this time. Additionally, acquaint yourself with the year-end distributions specific to your mutual fund. Moreover, get to know about such issues as capital gains, mutual fund cost basis and fund distributions procedures.

  4. Federal Income Tax Deduction

    It is a good advice to examine your Federal Tax Deduction levels against your estimated taxable income. This should be done in order to see whether you are under or over paying Federal taxes. Unfortunately, if you discover this opportunity in mid-December, it may be too late for you especially if your employer is not flexible enough. By ensuring that you have paid enough you will evade tax penalties.  

    If you are:

    • under paying - speak with your employer whether it is possible to keep a large amount for your Federal taxes. This hold should be done in your paychecks that remain to be paid. This is a common practice and even some employers may allow you to determine the exact amount you want to hold.
    • over paying - ask your employer to alter the rate in the paychecks that remain to be paid.
  5. Offsetting losses

    At the end of the year verify whether you have incurred net loss or gain by checking your stock and mutual fund capital gains. A trick to reduce your taxes is to sell stocks and funds at a loss. This is done in order to offset gains. But to be sure that you will achieve a positive outcome, advise with a tax professional.

  6. Donate

    Giving away money to charity should be done before the end of the year. If you need the cash, donate stocks with large capital gains. It is possible to evade taxes on appreciation by donating the stocks, instead of selling them.

  7. Financial Paperwork

    You should be very careful when organizing your documents so that not to throw away financial paperwork that may be crucial for your future bookkeeping.

These are some of the most important matters you should take care of when the end of the year is approaching. Keep them in mind and try not to undervalue any of them since this may lead to unwanted subsequences.

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