As we approach the end of the year, now is the time to make intentional, last-minute financial planning decisions that can meaningfully impact not just this year’s outcome, but your long-term financial trajectory.
In this first part of our year-end planning series, we’ll focus on:
- Investment and asset strategies
- Required Minimum Distribution (RMD) planning
- Practical tax planning moves to consider before December 31
For many high-earning professionals and retirees here in Hampton Roads, these final weeks represent an important window to improve tax efficiency and reduce avoidable mistakes.
What Should You Do With Unrealized Investment Losses in Taxable Accounts?
If you hold investments in taxable brokerage accounts, meaning accounts outside of IRAs, 401(k)s, TSPs, or other retirement plans, you may consider realizing losses to offset any gains you had throughout the year. This strategy (known as tax-loss harvesting) is worth reviewing before the end of the year.
How Tax-Loss Harvesting Works
Tax-loss harvesting allows you to:
- Sell investments at a loss
- Offset realized capital gains from earlier in the year
- Deduct up to $3,000 against ordinary income annually
For clients in higher tax brackets, that $3,000 deduction can be particularly valuable.
Important Considerations
- This applies only to taxable accounts, not retirement accounts
- After selling at a loss, you must wait 30 days before repurchasing the same or a “substantially identical” investment to avoid the wash-sale rule
- This is a more advanced strategy best executed with professional guidance
Given strong market performance over the past couple of years, many investors won’t have meaningful losses. But if you do, they shouldn’t be ignored and tax-loss harvesting may be a smart financial move for you.
How to Manage Capital Gains Distributions in Taxable Brokerage Accounts
Another common year-end issue involves mutual fund capital gains distributions.
Why Mutual Fund Gains Matter
Mutual funds are required to distribute realized gains to shareholders annually, at minimum. These distributions may include:
- Capital gains
- Dividends
- Interest income
All are taxable when held in a non-retirement account, whether you reinvest them or not.
A More Tax-Efficient Option
In some cases, selling a mutual fund before the distribution occurs can:
- Trigger a capital gain taxed at preferential rates (often 15%)
- Avoid ordinary income taxation from distributions
- Align with portfolio rebalancing or investment changes already planned
This strategy should never be driven solely by taxes, but when aligned with your broader plan, it can reduce tax liability before the end of the year.
What Are Some End of Year Tax Strategies For Required Minimum Distributions?
Who Must Take an RMD?
If you are age 73 or older, you are required to take distributions from:
- Traditional IRAs
- Employer retirement plans still held with former employers
Failing to do so by December 31 can result in penalties of up to 25% of the amount not withdrawn.
Simplifying RMDs When You Have Multiple IRAs
If you own multiple traditional IRAs, here’s an important planning tip:
You may aggregate the total RMD amount and withdraw it from just one IRA, rather than taking separate distributions from each account.
This can:
- Reduce administrative complexity
- Simplify cash-flow planning
- Help consolidate investment oversight
However, you are still responsible for ensuring the correct total amount is withdrawn.
RMD Rules for Employer Retirement Plans
Employer plans, such as old 401(k)s, 403(b)s, or TSPs, cannot be aggregated with IRAs.
Each plan:
- Requires its own RMD calculation
- Must distribute funds independently
This is one reason we often recommend consolidating old employer plans into a single IRA when appropriate, it dramatically simplifies long-term administration and reduces the risk of costly errors.
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When Should Tax Planning Really Begin?
While many people focus on tax planning in December, the reality is:
The most effective tax planning is done years in advance.
Year-end moves can help, but strategic tax decisions often:
- Span multiple tax years
- Create lifetime tax savings
- Reduce future RMD exposure
Tax planning should be proactive, ongoing, and coordinated with your broader financial plan, not something rushed in April.
Key Tax Planning Questions to Ask Before Year-End
Do You Expect Your Income to Increase Over Time?
For professionals early or mid-career, rising income is common. In those cases, consider:
- Roth IRA or Roth 401(k) contributions
- Roth employer match elections (if available)
- Strategic Roth conversions during lower-income years
Lower tax brackets (10%–24%) are often ideal for Roth strategies, especially earlier in your career. If you’re in the 24% – 37% tax bracket, you may be able to effectively lower your taxable income by contributing to deductible retirement plans and traditional IRAs.
What If You Expect Your Income to Decrease?
If you’re within five years of retirement, your planning priorities shift.
During your highest-earning years:
- Maximize pre-tax 401(k) or retirement plan contributions
- Take advantage of catch-up contributions if age 50+
- Reduce taxable income while marginal rates are high
Few households fully utilize the generous contribution limits available, leaving meaningful tax savings on the table.
Using Capital Loss Carryforwards Strategically
If you experienced significant investment losses in prior years:
- Those losses can carry forward indefinitely
- They can offset future capital gains
- Up to $3,000 per year can offset ordinary income
However, you must track them properly. If they fall off your return due to poor record-keeping, the tax benefit is lost.
Final Thoughts: Tax Efficiency Without Letting Taxes Drive the Plan
Taxes matter. But they shouldn’t dictate every decision.
Our goal is not to eliminate taxes (that’s unrealistic), but to help clients:
- Be as tax-efficient as reasonably possible
- Make decisions that support long-term net-worth growth
- Avoid unnecessary penalties and administrative mistakes
Year-end planning is a powerful opportunity, but only when it fits into a well-designed, long-term financial strategy.