Retired? Year-end checkup

Tax planning, progress checks, and asset protection are part of a year-end financial checkup.

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Financial housekeeping might remind you of Goldilocks—spring seems too early, summer gets too busy, but fall feels just right.

Reviewing your finances well before the end of the year allows you to potentially make some smart tax and retirement income planning moves. Plus, who wants the stress of scrambling to meet year-end deadlines—especially during the holidays?

Here are some important tax, planning, and asset protection things to do. Tip: Several of the tips below require logging in to, so make sure you have your login information handy and up to date. If you forgot your password, here's how to reset it.

1. Make smart tax moves.

Don’t overlook required distributions from retirement accounts, and take advantage of tax-saving opportunities to help reduce your taxes.

Take your minimum required distributions (MRDs).

Once you reach age 70½, you’re generally required to begin taking annual minimum required distributions (MRDs)—also known as required minimum distributions (RMDs)—from your tax-deferred retirement accounts by December 31 each year. You can choose to delay your first MRD until April 1 of the following year. If you delay your first distribution, you’ll be required to take two MRDs in one year, which could bump you into a higher tax bracket. Regardless of what you decide, don’t miss the deadline, as this can be a costly mistake. The IRS imposes a significant tax penalty equal to 50% of the amount not taken. If you don’t need the cash to cover expenses, you can always reinvest the money in a nonretirement account to generate additional income.

Many people wait until December to take their MRD as one distribution, but why risk missing the deadline? You can have your MRDs calculated automatically each year and taken out of your account on a schedule that works for you—monthly, annually, or on a customized schedule.

Consider a qualified charitable distribution.

If you want to donate to charity, you may want to look into a qualified charitable distribution (QCD). A QCD is a direct transfer of funds from your IRA custodian, payable to a qualified charity. An option once you’ve reached age 70½, the QCD amount counts toward your MRD for the year, up to $100,000. It’s not included in your gross income and does not count against the limits on deductions for charitable contributions. These can be significant advantages for certain high-income earners, but the rules are complex—be sure to consult with your tax advisor.

Make charitable giving part of your tax strategy.

If you itemize, a donation from a taxable account is an effective tax-reduction strategy. This is particularly true if you can contribute appreciated securities held for at least a year. Contributing them to charity not only entitles you to a tax deduction (assuming you qualify) but also allows you to avoid the capital gains tax. For all contributions under $250, remember to get a receipt or have a canceled check. 

For noncash contributions over $250, you’ll need a receipt that includes a description of the item and other details. You might also consider a donor-advised fund, such as a Giving Account® from Fidelity Charitable.® It allows you to make a contribution, be eligible for an immediate tax deduction, and then recommend grants over time to any IRS-qualified public charity.

Help reduce taxes on investment gains.

If you invest in stocks, bonds, or mutual funds in accounts other than an IRA or 401(k)—a non-retirement brokerage account for instance—you may be able to reduce taxes on any investment gains for distributions from mutual funds. Tax-loss harvesting might sound complicated, but the principle is fairly simple. Offset your realized taxable gains on your investments (capital gains) with realized losses (capital losses). That means selling stocks, bonds, and mutual funds that have lost value, to help reduce taxes on gains from winning investments. However, don’t undermine your long-term investing goals by selling an investment just for tax purposes. Tax-loss harvesting needs to be done by December 31.

Check your tax payments to date.

Take a look at how much you have sent to the IRS in quarterly payments or had withheld from your retirement account distributions. Next, determine how much more you expect to owe, based on this year’s anticipated taxable income including capital gains distributions. Your objective should be to come as close to your actual tax liability as possible. Sending in too much is like giving the IRS a free loan. Sending in too little could cause a cash crunch when you file your 2016 tax return, and it could even subject you to a tax penalty.

2. Plan and manage.

A quick evaluation of your investments and retirement income plan can help ensure that you’re on track to meet future financial needs.

Manage withdrawals from taxable, tax-deferred, and tax-exempt accounts.

How you withdraw money from your retirement accounts can affect how long your savings last, as well as your current-year tax bill. In general, if you are age 70½ or older, you need to take your MRD first, then withdraw from taxable accounts, followed by tax-deferred accounts. Tax-exempt accounts—Roth IRAs and Roth 401(k)s—come last. But a flexible strategy may work, too. For example, depending on your tax situation, you may want to reduce your withdrawal from a tax-deferred account and instead withdraw from your tax-exempt Roth accounts, to avoid being bumped into a higher tax bracket. This strategy can be complex, so be sure to consult with your tax advisor.

Review your investment and retirement income strategy.

Investment growth plays an important role in a retirement income strategy, and an appropriate investment mix is essential to smart investing. As investments gain or lose value, you should review and adjust your mix of stocks, bonds, and cash to ensure it remains in balance. Life events may also dictate changes. You may find that managing your portfolio is easier if you bring all your accounts under one roof.

Consider a qualified longevity annuity contract to manage future income.

One way to secure lifetime income that begins later in retirement is with a qualified longevity annuity contract, or QLAC. A QLAC allows you to use a portion of your balance in qualified accounts—such as a traditional IRA or 401(k)1—to purchase a deferred income annuity.2

A QLAC allows income to begin beyond age 70½ without conflicting with MRD rules. In fact, QLACs provide you with flexibility to defer the income start date until age 85, to help cover essential expenses that may arise later in life, such as for health care.

3. Protect what you have

Protecting your assets can be as simple as keeping your beneficiaries up to date and staying on top of your credit report.

Check your beneficiaries.

Life comes at you fast. New grandchildren, changes in marital status, and other life events make it necessary to stay on top of the beneficiaries named on your investment accounts. Out-of-date beneficiaries could cause your assets to be distributed in ways that you didn’t intend. While doing your annual financial review, take a few minutes to perform this important task.

Create or review your estate plan.

Estate planning isn’t just for the old or very rich. No matter what your age or financial status, there are important things you can do. A basic plan includes a will, as well as instructions for what happens if you become incapacitated. Naming a health care proxy, establishing a “living will” regarding end-of-life medical care, and naming a power of attorney can help your loved ones understand your wishes. Talk to your family about your wishes, too.

Take advantage of gifting to family members.

You can gift up to $14,000 a year to as many people as you like, tax free, in 2016. Taking full advantage of the gift tax exclusion can be a tax-efficient way to begin the distribution of cash and investments that are part of your estate, and that would potentially be subject to inheritance taxes.

Stay on top of Medicare eligibility.

If you’re turning age 65 this year, and you’re not working, and you haven’t begun collecting Social Security, make sure you don’t miss your Medicare sign-up window. If you do, you could end up paying higher premiums permanently. You can sign up for Medicare beginning three months before you turn 65, and the initial enrollment period lasts until three months after your birthday. Monthly Part B premiums increase by 10% for every 12-month period you were eligible but didn't sign up.

Review your credit report.

When it comes to your credit, what you don’t know can definitely hurt you. Checking your report for suspicious activity that could be an indicator of identity theft is critical. Federal law requires each of the nationwide credit reporting companies—Equifax, Experian, and TransUnion—to provide you with a free copy of your credit report, at your request, once every 12 months.

It’s worth it.

These things are important parts of a year-end financial checkup, and some of them need to be addressed by December 31. Most of them can be accomplished quickly, but the benefits can last a lifetime.

Learn more

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1. Traditional IRA includes SEP and SIMPLE IRA. QLACs cannot be purchased with Roth or Inherited IRA dollars.
2. Deferred income annuity contracts are irrevocable, they have no cash surrender, value and no withdrawals are permitted.

Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.

Guidance provided by Fidelity through the Planning & Guidance Center is educational in nature, is not individualized, and is not intended to serve as the primary basis for your investment or tax-planning decisions.

Fixed annuities available at Fidelity are issued by third-party insurance companies, which are not affiliated with any Fidelity Investments company. These products are distributed by Fidelity Insurance Agency, Inc., and, for certain products, by Fidelity Brokerage Services, Member NYSE, SIPC. A contract’s financial guarantees are solely the responsibility of and are subject to the claims-paying ability of the issuing insurance company.

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