Gaining TrustA newsletter for personal trust, private asset management and individual advisory clients

Progress…amid a world of risksAfter a substantial period of relative calm, financial markets have recently experienced a sharp upswing in volatility. The marked turnaround in market action came against a backdrop of improvement in the United States, but a global environment fraught with risks. Most domestic asset classes did advance in the third quarter of 2014 — some to their highest levels ever — and the U.S. economy’s acceleration in the spring carried through to the summer; but the market’s move higher was accompanied by a sense of foreboding among many investors about an imminent pullback. Investor confidence was shaken by growing acceptance that the Federal Reserve is poised to end its six-year-old zero interest rate policy, erosion in the global economic climate and intensifying geopolitical discord. It didn’t help that Middle Eastern terror groups deftly manipulating social media and releasing images of unthinkable atrocities unleashed a surge in military conflict in the region. As if those issues weren’t worrisome enough, the outbreak of Ebola in West Africa stoked fears of contagion oceans away.

So far, however, the domestic economy is on track to continue advancing at a moderate pace in the months ahead. The average length of post-war expansions is 58 months.1 The current expansion is more than 63 months old. Both growth and employment have surpassed their pre-recession levels. However, the inter-connectedness of the global economy is once again raising questions about the sustainability of the progress here at home, especially within the context of a normalizing domestic interest rate environment and deterioration overseas. What are some of the front-burner issues facing the United States? Will financial market turbulence undermine an expansion that is still relatively fragile? Will the Fed’s anticipated course of action be altered by unanticipated developments? Where does this all leave investors and their portfolios?

Liftoff: How soon and how fast?With the massive Fed asset-buying program known as Quantitative Easing (QE) ending, the financial market has shifted its focus to estimating when the Fed will raise interest rates and how it intends to achieve maximum employment and stable inflation — its twin mandates. That debate will continue to cause fluctuations in the financial markets. Some central bank officials have openly stated that “liftoff,” as it has been dubbed, should begin sooner rather than later. Others have even suggested an openness to either delaying the expiration of the current round of QE or introducing another round if necessary.

In this issue

1 Progress…amid a world of risks

7 Five tips to avoid unexpected tax bites

Published by TIAA-CREF Trust Company, FSB 211 North Broadway, Suite 1000 St. Louis, MO 63102

Toll-free: 888 842-9001 Direct: 314 244-5000 Fax: 314 244-5012

Issue 4, Volume 9 Fall 2014

2 | Gaining Trust | Fall 2014

However, most committee members still appear to agree with Fed Chair Janet Yellen that it is important to ensure the sustainability of growth rather than tighten credit prematurely and risk disrupting the economy’s progress. A premature rate hike could result in the need to reverse course and resume interest rate reductions — a challenge that isn’t guaranteed to be successful given that there would be limited scope for further action. Two of the primary advocates for an earlier liftoff will step down from the Fed in the coming months and, whether it is realistic or not, some market participants have already begun betting that this makes the central bank less inclined to hike rates sooner.

Another concern expressed by some Fed officials lately is the possibility that the dollar’s strength could damage growth prospects by making U.S. exports more expensive overseas. The dollar gained more than five percent against other major currencies in the third quarter alone,2 adding to an already sizeable bounce for the year. One widely-tracked index shows the dollar rose for 11 consecutive weeks through the end of the third quarter, the longest such streak in at least 28 years.3 The currency is poised to gain more ground as the U.S. moves to raise its interest rates while Europe and Japan ease theirs.

In our view, the current economic trajectory makes it unlikely that interest rates will be lifted before mid-2015. An alternative outcome cannot be ruled out, however. Chair Yellen has explicitly stated that if growth surpasses forecasts, the adjustment in interest rates may begin sooner than the market currently anticipates. Conversely, growth that undershoots expectations could cause the Fed to rethink the timing of liftoff. Importantly, market volatility could heat up if changes in the language used in the Fed’s communication indicate an earlier liftoff of interest rates. In addition to economic progress, another one of the most significant factors in the central bank’s decision making will be the pace of inflation.

Inflation remains a worry…but should it be?The Fed has pumped nearly $3 trillion worth of liquidity into the financial system since 2008, and fears persist that this could soon have painful consequences for the economy and investors. The evidence does not yet support this view. Inflation, as measured by the price index attached to Personal Consumption Expenditures excluding food and energy costs (the Fed’s preferred gauge4), has been stable at 1.5% for the past four months, and has now spent more than 27 months below the central bank’s 2% target.

Food and energy costsSeveral factors are restraining inflationary impulses. The stronger dollar lowers the cost of imported goods. In addition, the cost of basic household essentials remains under control relative to historical patterns. According to Cornerstone Macro, “Consumers are spending 12.5% of

each dollar today on food and energy. That is the lowest food and energy tax since December 2008 and June 2005.” Lower food and energy bills leave households with more disposable income and amount to a de facto tax cut. Surging domestic energy production and greater energy efficiency are also capping oil prices. The price of Brent crude — the global benchmark — has declined more than 13% year to date. Commodity costs overall have fallen decisively, as growth in China — the world’s largest commodity consumer — has decelerated. China’s deflating property sector — which accounts for around 15% of GDP — could further threaten its growth, and spill over to dampen global activity along with commodity prices. Each one percentage point decline in China’s economic growth erases two-tenths-of-a-percentage-point from annual U.S. growth.5

Healthcare costsThere was a 2% increase in medical costs last year, the lowest in 65 years.6 The pullback in healthcare inflation growth is primarily due to mandatory government budget cuts in Medicare payments, the Affordable Care Act and other legislative changes.7 Since Medicare is the biggest spender on healthcare in the U.S., it substantially impacts the cost of private healthcare spending as well. It is expected to continue weighing on the nation’s overall healthcare bills for the short term, at least.

Wage and income growthFor the majority of Americans, incomes have not grown sufficiently since the Fed began its aggressive intervention to drive inflation higher. The chart below illustrates this development quite starkly.

The Fed clearly stated at the outset that one of the goals of QE was to encourage the acquisition of riskier assets. Judging from this chart, that mission has been accomplished. As the

Growth in earnings, GDP and the stock market

6/30/2009 to 8/31/2014By far, the stock market has been the biggest beneficiary of the Fed’s actions.

Source: Ned Davis, BLS, Commerce Dept., Haver Analytics, S&P Dow Jones Indices

0 20 40 60 80 100

Real AverageWeekly Earnings

Real GDP

Real S&P 500 Price

Percent Change

3%

11.4%

97.3%

Gaining Trust | Fall 2014 | 3

central bank itself has observed, “America has the lowest level of stock ownership in 18 years. Yet stock ownership for the wealthy is at a new high…fully 93% of the wealthiest 10% of Americans own stocks. That’s nearly twice the level for the middle 50% and far more than the 26% stock ownership for the bottom 40%.”8 A closer look at the trend in the fortunes of those who do not derive the majority of their net worth from investment holdings is equally revealing.

Since the end of the Great Recession, approximately 65% of the net new jobs created have been in lower-paying industries.9

This is a trend that began decades ago when the country’s reliance on manufacturing started declining and its reliance on service- and knowledge-based industries started to grow. It would not be surprising if this pattern persists in the years ahead as aging Baby Boomers enter retirement — a time of life when income and spending growth typically slow.

Great expectationsThe Federal Reserve also closely tracks inflation expectations. As highlighted in earlier editions of Gaining Trust, Americans’ spending decisions have historically been governed by their perception of the direction in which prices of the items that they purchase are headed. Those perceptions also influence the Fed’s interest rate decisions. Presently, inflation expectations are stable, and there is no indication that they are on course for a radical shift imminently. In our view, the economy will likely experience a gradual pick-up in inflation rather than a rapid, damaging spike as economic growth gradually strengthens over time.

Annual growth in inflation-adjusted wages and salaries by decade

Wage growth has declined significantly since the 1940s.

Source: Bureau of Economic Analysis, Morgan Stanley Research

Average annual income by age group in 2013

44.7 million Americans are over 65 years old, a time of life in which income growth typically declines.

Source: BLS, Morgan Stanley Research

Inflation expectations

Currently, Americans do not appear to expect inflation to surge.

4 | Gaining Trust | Fall 2014

Confidence is keyConfidence among consumers and businesses is another fundamental determinant of spending. Greater optimism spurred strong, broad-based business spending after last winter’s downturn. Companies bought everything from commercial aircraft and machinery to computers and appliances. With respect to consumers, auto sales in particular have been so robust that some automakers shortened the length of their annual summer plant retooling shutdowns so that assembly lines could keep running to keep up with demand.

In recent weeks, escalating hostilities in the Middle East have weighed on some measures of consumer and corporate confidence. Consumer spending constitutes the majority of domestic economic activity. Its growth in the post-Great Recession years has lacked the swiftness that powered the economy prior to the housing collapse and the financial crisis. Part of the legacy of the worst ever postwar recession is heightened sensitivity to the consequences of excessive spending and debt. Consumers as a whole now not only spend more judiciously than they did during previous cycles, but they are also reluctant to increase debt significantly beyond current levels. In such an environment, any adverse events could quickly impair sentiment.

The gloomier mood among CEOs reflected in a recent, widely-followed survey10 can be blamed partly on worry over whether Washington will extend tax breaks that have helped research and development as well as capital expenditures. CEOs are also closely monitoring the debate over resolving the issue of corporations moving their headquarters to more tax-friendly jurisdictions overseas. Russia’s recent annexation of Crimea is another issue giving many CEOs pause as they plan ahead because of the lack of clarity surrounding President Vladimir Putin’s true intentions for the rest of Ukraine. This situation has the potential to disrupt the already-ailing Eurozone economy. U.S. involvement in the outbreak of military conflict in the Middle East is also unsettling.

Corporate executives continue to project steady sales in the months ahead, however; and consumer sentiment may brighten heading into the holidays. Gas prices are trending lower, creating a positive backdrop for consumer activity. Several businesses plan to expand hiring by the thousands, albeit temporarily for the holiday season. Those additional paychecks increase the odds of higher spending.

Risky businessAmerican investors face several potentially market-moving events in the coming months. Housing — the epicenter of the financial crisis — has seen its gains cool somewhat lately. In August, sales of newly-built homes posted their biggest one-month jump since 1992 to a six-year high.

However, those homes represent less than 8% of the overall housing market.11 Sales of previously-owned homes — the majority of residential housing — have been uneven as investors have stepped back from the market and first-time homebuyers are still not participating in full measure. Also, at least one real-time tracker shows a pause in the easing of lending restrictions that began more than a year ago.12 Some observers worry that student loan debt — now roughly $1.3 trillion or 40% of consumer debt — may be causing first-time buyers to defer homeownership as they fear taking on mortgage debt.13

Our opinion is that the housing outlook remains modestly positive, especially with hiring expanding. Moreover, while mortgage rates are projected to rise amid the Fed’s interest rate normalization process, they are currently close to their historical lows; and affordability should remain high relative to long-range averages.

The midterm election may generate its share of market-moving headlines. Regardless of the outcome, more gridlock is expected and the election is unlikely to lead to genuine, far-reaching changes on vital issues like comprehensive tax reform. Some unresolved issues — such as tax inversion policy and the extension of tax breaks to help businesses — may become fodder for Congressional wrangling during the lame-duck session. There is also the possibility that control of the Senate may not be decided in November because either Louisiana or Georgia (or both) may have to be decided by run-off elections in December and/or January.

Global affairs may be in a more tenuous state than is fully appreciated by the public. Oil prices have not responded with their characteristic spike as they have during past global conflicts, so investors are still relatively sanguine about the prospects for resolution. There are multiple unknowns, as well as new and varied ways in which warfare is evolving. Several unresolved conflicts are unfolding worldwide, including Russia-Ukraine, Iraq-Syria and Hong Kong-China just to name a few. This suggests that the risks inherent in the geopolitical outlook could roil financial markets and should not be underestimated.

Fixed incomeWith Quantitative Easing (QE) edging toward conclusion and the Fed assessing when to begin raising interest rates, the potential impact of monetary policy normalization on fixed income markets remains a major focus for investors. The combination of mixed signals across the domestic economic landscape, moderation in inflation, weakness in global growth and an increase in geopolitical tensions helped lower Treasury yields. The safe-haven aspect of Treasuries and their relative attractiveness compared with other high-quality sovereign debt drove the yield on the benchmark ten year note down during the summer. The lowest yield year to date was achieved during October’s market volatility. Large

Gaining Trust | Fall 2014 | 5

upticks in rates seem unlikely in the next few months and Treasury yields could remain locked in their current range for some time. Essentially, the “lower for longer” environment for Treasury yields seems to have gained momentum in recent months. Prospective additional monetary stimulus measures by the European Central Bank (ECB) could lower European bond yields further, which can result in downward pressure on U.S. Treasury yields as well.

While conceding that the path of future rate increase is likely to be data dependent, market expectations for the first Fed rate hike are clustered around mid-2015. When rates do begin to rise, expectations center on a modest pace of successive 25-basis-point moves. In this context, yields for longer-maturity Treasuries increase, but should not spike higher. It seems reasonable that the Fed would prefer a more controlled ascent over time rather than a quick upward adjustment which could disrupt economic growth. The trajectory of the eventual rate rise has varying implications across the full spectrum of fixed-income sectors including corporate bonds.

The protracted period of low interest rates has prompted investors to seek better-yielding alternatives to sovereign debt. The major beneficiary of fund flows in this respect has been the credit markets, which are composed of sectors ranging from high-quality investment-grade corporate bonds to riskier segments like high-yield corporate bonds and emerging markets debt. As credit spreads have tightened, many investors have migrated to riskier assets in search of greater returns, further compressing the yield differentials between highly-rated and lower-quality securities. Year to

date, the investment-grade bond market has seen heavy inflows of institutional and retail investment amid strong performance. By comparison, high-yield and emerging debt sectors have been more variable, with outflows periodically materializing as investors tread cautiously in the face of greater global tensions and a more muted economic outlook. This behavior could persist into year end, if investors continue to display a lower appetite for risk given potential Fed policy changes.

Treasury Inflation-Protected Securities (TIPS) generally reflect investors’ views on expected inflation. In recent months, the prices on this asset class have weakened, as inflation readings have moderated. Lower commodity prices have also contributed to the pressure on TIPS’ prices.

As an asset class, municipal bonds are heavily influenced by the supply of available bonds in both the new issue and secondary markets. On a relative basis, the supply dynamics and the quest for tax-exempt income tend to reduce this market’s sensitivity to interest rate moves. After consecutive years of lower issuance, the extended decline in supply is providing strong support to the sector. The recovering economy, increased incomes and higher tax rates among investors are also driving demand. Another factor that bolsters municipal bonds is the noteworthy stability of the asset class in terms of credit quality. Despite headlines highlighting financially impaired municipalities, actual defaults remain negligible (measuring well below 1%). We believe that if rates eventually rise in a gradual and orderly manner, municipal bonds could outperform Treasuries given the limited supply and high credit quality considerations.

EquitiesWorld stocks declined 2% in the third quarter and are slightly higher year to date.14 While U.S. stocks were broadly flat during the third quarter, international developed and emerging markets posted declines in dollar terms, due to the strengthening U.S. currency. In our view, domestic equities remain on track for mid-single digit to low double-digit returns for the year. Equity market volatility has been relatively low over the past few years, and this is unlikely to continue for an extended period of time. The U.S. markets have not experienced a 10% correction in three years, but these are normal and often healthy pullbacks that could present opportunities for investors. At the present time, we do not believe the catalysts are in place for a protracted downturn in the U.S. equity markets, although the potential does exist for economic shocks from abroad. Overall, U.S. businesses are in good shape. Corporate managements have been disciplined with regard to debt and capital expenditures. The largest increases in capital spending have been related to building infrastructure in the energy and chemicals complex due to the U.S.’ advantaged position in energy

costs. Corporate profit margins remain high, and we expect this will continue for some time as input costs remain under control. Equity valuations have reset into a range that could be characterized as broadly normal. We expect equities’ performance to be in line with longer-term historical returns as we look ahead on a five- to seven-year basis, but as always, the outlook is not devoid of risks. Domestically, a policy debate over the likelihood of growing deficits will come into focus with the 2016 presidential elections, and comprehensive tax reform could feature prominently. As it has in the past, this may increase U.S. equity market volatility.

Larger domestic stocks are doing better than smaller stocks this year (see table on next page).

The underperformance of smaller cap issues began this past March. Since equities bottomed in 2009, small-cap stocks have outperformed the broader market, but the gap has narrowed in the past six months. Small-cap stocks have also performed well since the peak of the Internet bubble in 1999, with the Russell 2000 outperforming the S&P 500 by almost 3% a year. However, while recent

6 | Gaining Trust | Fall 2014

small-cap outperformance (relative to larger peers) has been in line with longer-term expectations that small-cap stocks will generally outperform larger stocks, the periods of outperformance are cyclical and can vary widely in length.

In the shorter term, small-cap stocks may recover some ground if investors start to focus on their higher exposure to the healthier U.S. economy, as small-cap stocks derive a meaningfully higher proportion of revenue from domestic sources than large caps. However, small-cap stocks are also more expensive and less profitable than large-caps. They are increasing their capital expenditures at a faster rate than their large-cap peers in order to maintain revenue growth and are also spending a far greater proportion of their cash flow on capital expenditures than their large-cap brethren.

Small-cap outperformance is not a consistent feature in the market, though they have produced returns in excess

of large caps (with more volatility) over time. In the 1990s, large-cap stocks markedly outperformed small caps. We expect that the performance of small-cap issues may not exhibit the same relative strength as we have seen since the beginning of the century. Given the uncertainties involved, we believe they should still be a meaningful allocation to a client’s overall equity portfolio. However, it may be time to review portfolio allocations to ensure small cap exposures have not crept meaningfully above longer term strategic allocation weights.

S&P 500 vs. Russell 2000

S&P 500 has outperformed the Russell 2000 on a total return basis since 2009.

— SPX Index — RTY Index

Source: Bloomberg

–50%

0%

50%

100%

150%

200%

March 92009

Jan 22010

Jan 2 2011

Jan 22012

Jan 22013

Jan 22014

SPX Index RTY Index

Year-to-date performance through 9/30/2014

S&P 100 8.77%

Russell Top 200 8.46%

S&P 500 8.34%

Russell 100 7.97%

Russell Midcap 6.86%

Russell 2000 (small cap) –4.40%

Russell Microcap –6.79%

1 Wall Street Journal, 4/20/14. 2 Wall Street Journal, 9/26/14 3 ICE U.S. Dollar Index, as quoted by the Wall Street Journal, 9/26/14 4 Year over year 5 Moody’s Analytics as quoted by Associated Press 6 Department of Labor as quoted by Bloomberg 7 Federal Reserve Bank of San Francisco, Goldman Sachs 8 Federal Reserve’s Survey of Consumer Finance as quoted by Ned Davis Research 9 Morgan Stanley 10 Business Roundtable’s Third Quarter survey 11 Bloomberg 12 Ellie Mae Mortgage Origination report as quoted by International Strategy and Investment 13 New York Times, 9/20/14 14 MSCI World Index.

In conclusionThere are a number of dominant headwinds confronting the global economy, some of which are outlined above. China, Japan and the Eurozone — the world’s three biggest economic blocs aside from the United States — are all struggling to restart growth with limited success so far. The Eurozone is in danger of sliding into outright deflation, and unemployment is stubbornly high. Policymakers’ efforts to restore growth are being complicated by the need for fiscal, banking, labor market and other reforms that would improve their competitiveness. In Japan, the government’s multipronged program, known as “Abenomics,” has yielded mixed results so far and is likely to make year-over-year comparisons on inflation and growth challenging. It is believed that China will meet its 7.5% growth target for

this year, but the country is battling to rebalance its economy, reduce its reliance on credit-fueled investment, stamp out corruption, clean up pollution, stabilize its property market and promote increased consumer activity — a tall order in a world not short of risks. Worldwide, inflation is largely contained, if not fading, and central banks in the Eurozone, Japan and possibly China will likely keep supplying ample amounts of liquidity to reinvigorate their respective economies even as the U.S. central bank prepares to guide interest rates modestly higher. Against that backdrop, we believe the United States will outperform its overseas counterparts, at least near term. Our overall view remains that domestic growth will continue its gradual — if uneven — acceleration with moderate inflation in the near term.

Gaining Trust | Fall 2014 | 7

Five tips to avoid unexpected tax bites Even though the end of the calendar year is fast approaching, you still have time to make a few key moves that give you important tax advantages and possible tax breaks. While some need to be made before December 31, 2014, you may also have until April 15, 2015 for others. Here are five tips to keep in mind as the year winds down to a close.

Tip #1 Maximize retirement plan contributions. While making contributions to any retirement plan can help you reach your retirement goals, making the maximum contributions to certain retirement plans or individual retirement accounts (IRAs) can reduce your gross income by the amount of the contribution. These plans cannot be Roth plans, which are not tax deductible.

In 2014, you may contribute up to $17,500 to 401(k), 403(b), and some 457 plans. If you are over age 50, you can contribute an additional $5,500 to these plans.1 You may also contribute up to $5,500 to your Traditional or Roth IRA in 2014, or $6,500 for those over 50.

Retirement plan contributions typically need to be made by December 31 of the year in which you’re claiming them, while you have until April 15 to make IRA contributions for the previous year. Note that IRA deductions are subject to income limits.

Tip #2Explore your Roth conversion options. In some cases, it makes sense to make a conversion from a Traditional IRA to a Roth IRA. With a Roth IRA, you pay income tax on your contributions, but the money has the benefit of growing tax free and the funds you take out in retirement are not subject to income tax.

Note that if you decide to make a conversion, you will need to pay income tax on the amount you’ve converted at your regular income tax rate. Be careful to consider whether the conversion itself may move you into a higher tax bracket, and whether there is a strategy that may offset any potential rise in income tax in your situation.

Should you convert from a Traditional to a Roth IRA? Both types of accounts offer benefits. You may be in a higher income tax bracket now than you will be in retirement, which may make the deductions from Traditional IRA contributions important to mitigating your tax bill. On the other hand, you may be in a position to maximize your Roth contributions over a long period of time, making the benefit of tax-savings on earnings a more attractive option. Working with a TIAA-CREF advisor and tax professional to make decisions about your

conversion options will help you avoid costly mistakes, including paying penalties on inaccurate calculations or having to reverse a conversion made in error and help ensure you’re following the best plan for your retirement.

Tip #3Manage “tax bracket creep.” As income from your salary, bonuses, or investments grows, you need to understand the implications for your taxes. At certain income levels, your marginal tax rate increases, deductions phase out, and you may be liable for higher taxes. (See Figure 1.) This will be especially important for higher-income earners who face Medicare taxes on earned and investment income starting in 2013. For taxpayers with modified adjusted gross income of $200,000 for a single person or $250,000 for a married couple, the Affordable Care Act imposes an additional Medicare tax of 3.8% on many forms of passive income, such as interest, dividend, capital gains, nonqualified annuities, rents and royalties. For earned income, there is an additional Medicare tax of 0.9% on amounts in excess of $200,000 for a single taxpayer or $250,000 for a married couple.

Figure 1. 2014 IRS Tax Brackets by filing status (indexed for inflation)

Single MarriedHead of Household

Marginal Tax Rate

$0+ $0+ $0+ 10%

$9,076+ $18,151+ $12,951+ 15%

$36,901+ $73,801+ $49,401+ 25%

$89,351+ $148,851+ $127,551+ 28%

$186,351+ $226,851+ $206,601+ 33%

$405,101+ $405,101+ $405,101+ 35%

$406,751+ $457,601+ $432,201+ 39.6%

Investment products are not insured by the FDIC; are not deposits or other obligations of TIAA-CREF Trust Company, FSB; are not guaranteed by TIAA-CREF Trust Company, FSB; and are subject to investment risks, including possible loss of principal invested. The information provided herein is for informational purposes only. It does not constitute an offer or recommendation to buy or sell any security. The views expressed in this newsletter may change in response to changing economic and market conditions. Past performance is not indicative of future returns.

TIAA-CREF Trust Company, FSB, provides investment management and trust services. TIAA-CREF Individual & Institutional Services, LLC, member FINRA & SIPC, distributes securities products. Advisory services provided by Advice & Planning Services, a division of TIAA-CREF Individual & Institutional Services, LLC, a registered investment adviser.

© 2014 TIAA-CREF Trust Company, FSB, 211 North Broadway, St. Louis, MO 63102C19948A 316820_473111

A37632 (10/14)

If you’re getting close to a higher tax bracket, look at how you may manage your income by December 31 to avoid going into a higher bracket. Check with your employer to see if a portion of your salary or your bonus may be paid after the first of the year, especially if you anticipate earning less money in 2015. If you have investments that have fallen in value and which may be sold, the loss may offset your increased income or some of your capital gains.

Tip #4Maximize year-end deductions for tax relief. Be sure to plan for any deductions you may take before the end of the year that could offer tax relief. Some common ways taxpayers can increase their deductions include making additional charitable contributions to 501(c)(3) nonprofit organizations and pre-paying deductible mortgage interest or state taxes. For example, if you know you’ll owe $10,000 in estimated state taxes due on January 15, pay them before December 31, 2014 to be eligible to claim the deduction. You may also consider contributing to a healthcare savings account or flexible spending account. Such contributions are made on a pretax basis and reduce your gross income.

Of course you need to consider how deduction phase-outs impact your decision to pay for them early. Itemized deductions begin to phase out for individuals whose income exceeds $254,200 for single individuals, or $305,050 for married couples filing jointly.

Tip #5Check your RMDs. If you’re nearing retirement or approaching age 70, you’ll need to begin creating an income plan for retirement. If you have retirement plans such as Traditional IRAs as well as 401(k), 403(b), and 457(b) plans, you generally must begin taking required minimum distributions (RMDs) on or before April 1 following the year you turn 70½. If you’re still working at 70½, your current employer’s retirement plan may allow you to wait until after you retire to take your first RMD from that plan. If this is the case, you have until April 1 following the year you retire to take your first RMD from the plan.

RMDs can be challenging to calculate and plan for. They should also be reviewed annually, since failure to withdraw them appropriately may result in tax penalties. A TIAA-CREF advisor can help you see how your RMD strategy fits into your broader retirement planning.

Take time now to soften the tax bite The most important thing you can do now is to take action. Don’t wait until it’s too late to make a move. A TIAA-CREF advisor, along with your tax professional, can give you smart planning moves to make in the new year to help you make the most of your financial plan.

1 Note that 457(b) private plans don’t allow 50+ catch ups.

This article is for general informational purposes only. It is not intended to be used, and cannot be used, as a substitute for specific individualized legal or tax advice. Additionally, any tax information provided is not intended to be used and cannot be used by any taxpayer for the purpose of avoiding tax penalties. Tax and other laws are subject to change, either prospectively or retroactively. TIAA-CREF, its affiliates, and their representatives do not provide tax advice. Individuals should consult with a qualified independent tax advisor, CPA and/or attorney for specific advice based on the individual’s personal circumstances. Examples included in this article, if any, are hypothetical and for illustrative purposes only.