P & Ls and RMDs—Your Year-End Financial Review

by Jeff C. Johnson

First, the P & L:

Before the year is out, make sure to check your profits and losses that have been recognized (i.e., investments sold that produced gains versus those that didn’t make money).

Make a list from all your taxable accounts (not IRAs and other tax-sheltered accounts) of all the gains you have taken and list all of the losses. Also, find out what year-end capital gains might be paid by investments that you might hold. The profits minus the losses are generally subject to capital gains taxes.

If you have unrealized losses, positions that you have not sold that are under water, you might want to sell these investments before year end to minimize gain taxes for 2016. Investments or other assets sold must not be repurchased for 31 days or the loss will not be deductible for income tax purposes.

 Now RMDs:

If you’re over age 70 ½, this year you are required to take money out of your retirement accounts and pay tax on it. It’s called Required Minimum Distributions (RMD), and it’s based on your year-end retirement account balances and your age.

Just know this: If you don’t take out the RMD or if you underwithdraw, the penalty is 50%!  So when you finally are notified that you didn’t withdraw or that you took out the wrong amount, you will pay tax on the distribution AND the 50% penalty, leaving little of the money withdrawn after taxes.

Your tax preparer can help, and the financial institutions that hold your accounts can help you too, if they haven’t notified you already.

 NOTE: See your income tax professional for advice before taking action on either of these topics.