Taking ActionTaking Action for Your Money


Get your tax ducks in a row before the end of the year

Posted at 4:41 PM, Nov 27, 2018
and last updated 2018-11-27 16:41:26-05

The end of the year is fast-approaching and in addition to all your holiday checklists, getting all your tax-ducks in a row can help you save some money – and some hassle if you plan properly.

Carl Carlson, CEO of Carlson Financial said three big things to consider are: retirement accounts, capital gains and Roth conversions.

With Individual Retirement Accounts, one has until they file their taxes to make their 2018 contribution. However, with an employer sponsored plan like a 401k, they money is deducted right from their paycheck. Participants who haven’t met their deferral limits yet might be able to adjust their contributions for the next couple pay periods to sock away some extra money. The other consideration with retirement accounts is for those over 70.5, making sure they take their annual Required Minimum Distribution by December 31st (unless is their first one).

For a lot of people who are in the stock market, they may have some losses in their accounts right now. Selling some of those positions at a loss – known as tax loss harvesting – can help offset taxes on capital gains, whether those gains are realized this year or in a future year.

Carlson said it's best to use capital losses to reduce capital gains and the taxes you owe on those gains.

Lastly, Roth conversions are also something to consider. A Roth conversion is moving money from a traditional IRA or other tax-deferred account, into a Roth IRA account. The implication is that any amount you move will be treated as taxable income in the year that you move it. The benefit is that once in a Roth, future withdrawals will be tax-free. This has to be done by December 31, Carlson said.

If someone wants to determine if they should do tax loss harvest or a Roth conversion they most likely could use help. Carlson said this should not be done lightly, but with the help of your financial planner and CPA, especially now.

Prior to the Tax Cuts and Jobs Act, it was possible to re-characterize or “undo” Roth conversions. Going forward, that option is not available so it’s very important to get right the first time. Tax loss harvesting also needs to be done carefully to be able to take advantage of the tax benefits.