Financial Marathon Training

February 28, 2022
By Matt Cohen, CFP®, CIMA®
Group of runners in a race. West Financial Services.

As we start a new year, I enjoy a reprieve from the holiday season sprint we all seem to go through from Thanksgiving to New Year’s Eve — and this year with the added pleasure of locating rapid antigen tests!
 

Our clients are often sprinting through a variety of year-end financial matters, as well. Many of these items can be started earlier in the year, reducing self-induced year-end stress. If you’re ready to lace up your financial running shoes again, here are a few items you can start now to complete over the remainder of the year.

Gifting:
The holiday season is a major fundraising period for charities, with a third of charitable giving occurring in the month of December1. While charities would welcome steadier fundraising throughout the year, there are other reasons to gift prior to year-end. When gifting appreciated stock, custodians like Fidelity and Schwab act on a “best efforts” basis during the last few weeks of the year. This could put your charitable donation in jeopardy of being processed in the next calendar year should you wait too long. 

Another popular gifting strategy is qualified charitable donations (QCDs) from IRA accounts. Donations made from an IRA can satisfy the required minimum distribution (RMD) up to $100,0002. Due to the IRS “first dollar out” rule, the RMD is satisfied with the first dollars distributed each year. Thus, if the RMD was satisfied earlier in the year, making a QCD later in the year won’t offset that income. You should prioritize the QCD. 

Tax Loss Harvesting:
From time to time even the most adroit investor will incur a loss on an investment. Many investors will review those positions near the end of the year to “harvest” the loss, with the intent to repurchase. The wash sale rule stipulates that an investor must wait 30 days before re-purchasing the security. The fundamental issue with the strategy is being out of the market during the wash sale period, and missing potential price appreciation — remember, gains are better than losses! 

Another approach is to purchase the security again and wait 30 days to sell the higher basis lot and harvest the loss. This strategy takes a bit of advance planning to ensure the sale can be executed in the current calendar year. Realized losses not used can be carried forward indefinitely, so there isn’t a risk of “use it or lose it” when harvesting losses early in the year. 

Estate Planning:
Implementing changes to an estate plan can take time and effort. You may need to open new accounts, change account registration and/or beneficiaries, transfer assets, etc. This often requires coordination between your estate attorney, financial advisor, and the custodian. Working with your estate attorney earlier in the year can avoid having the carefully made plans implemented in the next calendar year.

Remember that we are here for you throughout the year to discuss financial strategies that you can take your time to implement, rather than add to your holiday to-do list.

Meet Matt Cohen, CFP®, CIMA® »

Read the Financial Focus Newsletter February 2022 »


Sources:

1https://www.nptechforgood.com/2015/09/16/20-must-know-fundraising-and-social-media-stats/
2https://www.irs.gov/publications/p590b#en_US_2020_publink100041439

Important Disclosures

  • West Financial Services, Inc. (“WFS”) offers investment advisory services and is registered with the U.S. Securities and Exchange Commission (“SEC”). SEC registration does not constitute an endorsement of the firm by the SEC nor does it indicate that the firm has attained a particular level of skill or ability. You should carefully read and review all information provided by WFS, including Form ADV Part 1A, Part 2A brochure and all supplements, and Form CRS.
  • Certain information contained herein was derived from third party sources, as indicated, and has not been independently verified. While the information presented herein is believed to be reliable, no representation or warranty is made concerning the accuracy of any information presented. Where such sources include opinions and projections, such opinions and projections should be ascribed only to the applicable third party source and not to WFS.
  • This information is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product, security, or concept. These materials are not intended as any form of substitute for individualized investment advice.