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Investing Specialists

A Fourth-Quarter Financial Calendar for Retirees

The financial to-dos come fast and furious between now and year-end; get them on your calendar now.

With the exception of filing their income tax returns each April 15 and possibly paying estimated taxes each quarter, most retirees can sail through the first nine months of each year without a lot of financial to-dos that carry hard-and-fast deadlines. But once the fourth quarter kicks off, the calendar gets a little fuller. Combined with the holiday season and shorter days, those deadlines can sail by in a hurry.

As we enter the fourth quarter of 2016, here are the key dates that retirees should keep on their radars.

Oct. 15-Dec. 7: Medicare Open Enrollment
Medicare-eligible adults can re-shop their Medicare coverage--specifically, their Medicare Part D (prescription drug) coverage and Medicare Advantage plans--during this period. (Note that open enrollment for healthcare coverage through the Affordable Care Act runs a bit later--Nov. 1 to Jan. 31, 2017.) Mark Miller, a Morningstar contributor who focuses on Social Security and Medicare, among other topics, says it's wise for seniors to shop their coverage each year. In particular, it's a good time to revisit your existing Medicare Part D coverage: Not only can premiums jump up, but the list of covered drugs--and the prices you pay for them--can change. In addition, enrollees in Medicare Advantage plans can and should also revisit their coverage during open enrollment season; the list of healthcare providers available through a given Medicare Advantage plan may change from year to year. Medicare enrollees should have already received in the mail details on what's changing with their coverage in the year ahead.

Oct. 17: IRA Recharacterization Deadline
If you made a 2015 IRA contribution, or converted an IRA from traditional to Roth (or vice versa), this is your deadline to "undo" your decision. For example, if you funded a Roth IRA for 2015 but your income level exceeded the threshold to do so, you'd need to recharacterize the contribution as a traditional IRA by this date. (Anyone, regardless of income level, can fund a traditional IRA, though the contribution may not be deductible if income exceeds the thresholds.) In a similar vein, if you converted an IRA from traditional to Roth but have since decided that it wasn't a good idea, you can recharacterize it back to a traditional IRA, provided you do it by Oct. 17.

Oct. 17 is also your deadline if you requested a six-month extension on your taxes; you must file your return and pay any taxes due by this date.

Nov. 8: Election Day
Vote, of course. And don't be surprised if the election results stir up some extra volatility in the markets. With current polls showing a tight presidential race and the possibility of a change in control of the Senate, there's the potential for a surprise result that could shake up the markets. That shouldn't rattle you unduly, however, provided you've got enough safe assets--cash and high-quality bonds--to fund your cash-flow needs for several years to come. This article describes how to come up with a comfortable asset allocation based on your anticipated in-retirement spending needs.

Dec. 1-31: Mutual Fund Capital Gains Distribution Season
Mutual funds typically distribute capital gains in December, if the fund manager has sold securities that appreciated in price in the year prior, and begin publishing estimates of impending distributions in the fourth quarter. (Those distribution estimates may be published in raw dollar terms or as a percentage of net asset value; if the former, you'll need to divide the estimated distribution by your fund's current NAV to determine how meaningful it is.) As in the previous few years, those distributions could be large at some funds. Not only has 2016 been a decent market for stocks--one in a fairly long string of strong equity returns dating to 2009--but ongoing redemptions at some actively managed equity funds have exacerbated capital gains distributions. That's because managers have had to sell off stocks to pay off departing shareholders, and that money is then distributed over a shrunken base of shareholders.

Capital gains distributions are a nonevent if you're investing in a tax-sheltered account and reinvesting those distributions--or if you're investing in a taxable account and spending the capital gains distributions. (You'd owe tax on the distribution no matter what.) But capital gains distributions can be a nuisance for investors in taxable accounts who are reinvesting those distributions. For one thing, the distributions are a lagging indicator; you can receive them even in years when your fund has posted a loss or barely positive results. Moreover, the capital gains are taxable, meaning that you could owe taxes on a fund even if you yourself haven't sold any shares. Selling pre-emptively can make sense if you wanted to lighten up on a holding for fundamental reasons or if your fund has been a serial distributor and you'd like to make your taxable portfolio more tax-efficient. As discussed in this article, you receive an increase in your cost basis when a fund makes a distribution that you reinvest, so a healthy share of the capital gains taxes you might pay when you unload a fund in which you have a gain may already be accounted for.

Dec. 31: Required Minimum Distribution Deadline
You have until year-end to take your required minimum distributions from IRAs and company retirement plans. But don't wait until the very last minute if you can avoid it. With a little time and energy, you can actually use RMDs to help improve your portfolio. As discussed in this article, you don't need to take RMDs from all of your holdings; rather, you can strategically employ RMDS to help rebalance and improve your portfolio's risk/reward profile. My suggestion is to conduct a cohesive year-end portfolio review, and use that exercise to help determine which holding(s) you cut back on to help meet your RMDs. If you're time-pressed, pruning your best-performing holding over the past three years is a good shortcut.

Dec. 31: Tax-Loss Sale Deadline
Year-end is also your deadline to harvest tax losses if you want to use them to reduce your tax bill for the 2016 tax year. You can sell depreciated securities from your taxable account and use those losses to offset an unlimited amount of capital gains and up to $3,000 in ordinary income. The year 2016 has been a decent one for stocks and bonds, both in the U.S. and overseas, meaning that mutual fund investors may find slim pickings as they hunt around for losing positions. Investors using the specific share identification method for tax-loss selling may have more luck, however, as may investors in individual stocks. This article provides more details on the ins and outs of tax-loss selling.

Dec. 31: Charitable Contribution Deadline
Year-end is also your deadline to make charitable contributions if you want to be able to deduct them on your 2016 tax return. If you're using the qualified charitable distribution maneuver--that is, steering a portion of your IRA distribution directly to a qualified charity--you also need to make that contribution by year-end. You can use QCDs to satisfy required minimum distributions, as discussed here.

Jan. 17, 2017: Quarterly Estimated Taxes Due
OK, it's not a 2016 deadline, but the January quarterly estimated tax deadline always seems to sneak up unexpectedly. Put it on your calendar now.