Investing Specialists

A 4th-Quarter Calendar for Retirees

Christine Benz

With the exception of filing their income tax returns in April 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 and financial deadlines come up fast and furiously. Combined with the holiday season and shorter days, those deadlines can hurtle by.

As we enter the fourth quarter of 2018, 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 for 2019--during this period. (Note that open enrollment for healthcare coverage through the Affordable Care Act runs a bit later--Nov. 1 to Dec. 15, 2018.) 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 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. 

Dec. 1-Dec. 31: Mutual Fund Capital Gains Distribution Season
Although some funds have already made early distributions, most mutual funds typically distribute capital gains in December, if the fund manager has sold securities that appreciated in price in the year prior. Fund firms typically 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 2018 been a decent market for stocks--one in a fairly long string of strong equity returns dating to 2009--but ongoing redemptions at many 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 in that case.) 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 hasn't done all that well. 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.

As Dec. 31 is the deadline for RMDs, it's also the deadline for RMD-subject investors to take advantage of the qualified charitable distribution maneuver. With a QCD, charitably minded retirees can steer all or a portion of their RMDs, up to $100,000, from their IRAs into a qualified charity. The advantage of the QCD, in contrast with taking the money out of an IRA, making a charitable contribution, and itemizing the deduction on Schedule A of your tax return, is that the QCD helps lower adjusted gross income. Moreover, under the new tax laws, many fewer taxpayers are expected to benefit from itemized deductions than in the past. Thus, the QCD gives RMD-subject retirees the chance to reap tax benefits from their charitable giving.

Dec. 31: Deadline for IRA Conversions for the 2018 Tax Year
Not every retiree should convert traditional IRA assets to Roth. But if you want to convert all or part of your balance this year because you expect that you’re in a (perhaps temporarily) low tax bracket, you'll need to do so by year-end in order for the taxes due to count on this year's return. Why would you want to pre-emptively pay taxes? Converting tax-deferred assets to Roth can be especially beneficial in the post-retirement, pre-RMD years, as discussed here. Just be sure to get some tax guidance before proceeding, because as of 2018, there are no more "do-overs" on IRA conversions. (The death of these do-overs, called recharacterizations, was one of the biggest retirement-related components of the new tax laws.)

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 2018 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. That said, this year has been a good one for stocks, 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.

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 2018 tax return. Note, however, that the new tax laws, which greatly increase the standard deduction amount, mean that many fewer taxpayers will be itemizing their deductions, including charitable contributions. If you're using the qualified charitable distribution maneuver you can benefit from your charitable contribution regardless of whether you itemize.

Jan. 15, 2019: Quarterly Estimated Taxes Due 
OK, it's not a 2018 deadline, but the January quarterly estimated tax deadline always seems to sneak up unexpectedly. Put it on your calendar now.