Allen Ostrofe: Five important end-of-year points
December 10, 2017
For many, 2017 was a very good financial year. Would there ever be a year to help those less fortunate, this is it!
Last week, we received a call from Santa Rosa, from a widow who is feeling the holiday spirit. She is financially secure, will have significant capital gains this year, is worried about those in her community, and her immediate family. She had a sum of money in mind to help, and asked us for our 5 best ideas:
Take a look at your taxes
In advance of possible changes to our tax law, check with your tax or Certified Financial Planner (CFP) whether donations might yield you important deductions. Check out locally housed charities that help local needs. Go to the internet (eg. http://www.charitynavigator.org) and see their "scores."
Specifically look to give to charities that pay the highest "net" to their causes. Consider avoiding charities that keep over 8 percent of your donation for administrative costs.
Think of the children
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Consider your youngest grandchildren. Should they be really young, look on the internet for a piggy bank "with a twist." Although a pink pig with a coin slot is the classic choice for encouraging kids to save, consider upgrading to a bank with three compartments: spend, save and share.
It can help kids learn to budget, balancing current spending with saving for the future and remembering to help others as well. Learning to "manage cash flow" is the greatest gift you can instill early in life.
Look to the future
Consider your school-aged grandchildren with a gift to cash in later. Consult your CFP on the advantages and risks of "Custodial Accounts" vs. "529 Plans." There are many options to choose from, tailor-made to your wishes and desires.
Our friends from "Columbia Threadneedle" share that while kids might not understand the effect of a 529 plan now, they will thank you later.
A contribution could help ease the burden of student loans in the future. Consider making a college savings gift every year around the holidays so their plans may have the opportunity to grow. Apprise yourself of all risks before investing.
Check your investments
Having a hard time deciphering the right place from which to draw the money, and fearful the markets may "correct"? The middle of December is the perfect time to sit with your CFP to "harvest" losses to offset gains, and liquidate what you sense may be more "aggressive" positions in your portfolio.
Then, double digit returns are not the norm in markets, particularly with our economy growing anemically. Taking some money "from the table" may be prudent for some at this juncture.
Set a ceiling goal for your portfolio to reach in value where you would like to stop being aggressive, and start looking to move money into investments that could be more stable.
Talk with your CFP
Sit down with your tax preparer BEFORE year end, with all the preliminary information you can muster from your CFP (eg. gains, losses, capital gains, etc). Identify your potential tax exposure for the year 2017 and get focused on what you might still have to pay by April 15, 2018.
Consider that, with a new tax bill in the works, we may be losing the ability to write off state tax payments sometime in the future. So paying your state taxes before year-end may provide, should lock in what may be taken from others in the future.
You will then be able to give to others, from a more knowledgeable position. These gifts can last your family and community for years to come, and helping someone contribute to their financial needs is always a good idea.
Allen Ostrofe, MBA, CFP®, is president of Ostrofe Financial Consultants, Inc., managing over $208 million in assets, with clients in 31 states. Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Ostrofe Financial Consultants, Inc., a Registered Investment Advisor and separate entity from LPL Financial. For questions or suggestions, visit ostrofefinancial.com. Branch address: 565 Brunswick Road, Ste. 15, Grass Valley.