Paul Meloan – Vested Interest

Deadlines are awesome.  Deadlines inspire planning to get things done and make things happen. What would we do without them? I know: we would get much less done, that’s what.

Fewer than 60 days remain in 2016. Now would be a good time to review what needs to happen before New Years Day rolls around.

Income Taxes

Do you believe this is the year in which your income will be higher than in future years? If so, it may behoove you to accelerate deductions into the current year.  Examples of this include charitable deductions, payments of state or local income taxes and property taxes (if you have any flexibility in their timing; most people do not). Note that for people subject to alternative minimum tax (AMT) payments of state income taxes and property taxes may not do you any good. They are not deductible under AMT. Consider whether 2016 was a big income year for you and is not likely to be repeated. If that’s the case there are several good ways to make multiple years’ worth of charitable gifts now. You’ll want to use this strategy now, while the deduction is the most valuable to you.

Estate Taxes

If you are making gifts covered under the annual exclusion from estate & gift tax you have until December 31 to make the gifts before this year’s exemption goes <POOF!>.  Each person may gift up to $14,000 to any other person every year without having to even report the gift. If you are fortunate enough to have a taxable estate (north of $5.45 million per person, $10.9 million per married couple) each distribution under the annual exclusion reduces your estate tax bill by 40% of the amount given. Do it now, live to a ripe old age, and that savings compounds over time. You are not just reducing your estate by the $1 you give away now, but also by everything it grows to over the rest of your life.

Education Planning

Are you are setting up 529 plans to save for college education for children or grandchildren? If so, the accounts need to be created and funded by December 31 to get any tax advantages this year. These advantages vary by state, but in all cases a contribution to a 529 plan gets assets out of your estate (see annual exclusion gifts, above) and permits compounded, tax-free growth of assets.

Retirement Planning

December 31 is also the deadline for some key provisions in retirement plans.

  1. Complete your Roth conversions for 2016 by this date so you can include the income in 2016. There are several situations where it may make sense to convert a traditional IRA into a Roth. You always have the ability to re-characterize later.
  2. Self-employed persons who wish to create a retirement plan like an i-401k typically need to have the plan created (although not necessarily funded) by December 31 in order to get a deduction in 2016.
  3. If you contribute to a 401k plan at work you have until December 31 to make any salary deferrals available to you into the plan.

This is by no means an exhaustive list. To get things done by year end you need to be reviewing these issues now, and setting money into motion.



Paul Meloan is the co-founder and co-managing member of Aegis Wealth Management, LLC, in Bethesda, Maryland USA. Before Aegis Paul was a practicing attorney as well as working in the tax practice of Ernst & Young, LLP.

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