Raking Up The Year
CRAIG LOKEN, ASSOCIATE PORTFOLIO MANAGER
Every fall in the Quad Cities, leaves eventually become part of the landscape. A few scattered across the lawn are easy enough to live with, especially when there is always the possibility that a well-timed breeze might relocate some of them to the neighbor’s yard. But if a wind arrives from the wrong direction, the gutters fill up, and suddenly what looked like a small job has become an afternoon cleaning up the yard. Year-end financial planning can work much the same way, minus the potential lower back pain.
Most financial decisions do not need to be made simply because year-end is approaching. In fact, much of the planning is ongoing and revisited at your annual review. However, a handful of items may be worth considering before the calendar turns.
A good place to start is to review your current-year income, since your adjusted gross income (AGI) can affect how much of your Social Security is taxable, your Medicare premiums in future years, and your eligibility for certain deductions. If a life event such as retirement, a bonus, or the sale of an investment made 2026 an unusual year, it is worth taking a closer look. A temporary lower-income year may also create an opportunity to consider a Roth conversion before year-end.
Retirement accounts are another part of the yard worth reviewing. If you are still working, there may be time to increase your 401(k) contributions through your remaining paychecks this year. If you are subject to a required minimum distribution (RMD), it is important to make sure the appropriate amount is withdrawn by the applicable deadline. Inherited IRAs deserve attention as well, since distribution requirements vary depending on the original owner and the beneficiary.
It is also worth reviewing the charitable gifts you plan to make and how they affect your tax picture. For those age 70½ or older, a qualified charitable distribution from an IRA can be an efficient way to support a charity, and once your RMDs begin, it can satisfy part or all of the requirement.
Living in the Quad Cities, it is important to be aware that simply crossing the river changes the rules. Iowa and Illinois treat certain income and deductions differently, so the same financial decision can have different state-tax consequences depending on which side of the Mississippi you call home.
Regardless of where home is, the federal estate and gift tax exemption has now been made permanent and indexed to inflation, reducing some of the urgency around federal estate taxes for many families. On the state side, Iowa’s inheritance tax has been fully repealed, while Illinois still has its own estate tax that applies at a much lower threshold than the federal exemption. We also firmly believe the basics still matter, such as confirming beneficiary designations reflect your current wishes, keeping important documents organized, and making sure the person who may someday handle your affairs knows where to find them. Annual gifts to family may also be worth reviewing before December 31.
Once this year’s leaves are gathered, look ahead to what next year and beyond may bring. You do not have to rake the entire financial yard in one weekend. Most of these conversations fit naturally into an annual review, and some may not require any action at all. The items with a December 31 deadline are the exception, and unlike a few stray leaves, no well-timed breeze is going to carry them over to the neighbor’s yard.
If something here sounds familiar, a conversation before the holiday season fills up the calendar can make sure your financial plans are gathered up while there is still time to act.