At year end, it’s beneficial to review financial objectives in determining whether any last-minute action is warranted to help ensure you remain on track with your financial goals. Below are some of the more common items to review, the important considerations that go into addressing them prior to the new year, and links to articles that dive deeper into the issue or strategy.
1. 2018 Tax Code Changes
One of the biggest changes for 2018 was the implementation of the Tax Cuts & Jobs Act of 2017 (TCJA). The new tax code had sweeping changes that altered existing tax brackets, changed standard deduction amounts and generally left a lot of taxpayers wondering how they would be impacted. Click here to review our 2018 Tax Planning Guide For many clients, running a tax projection is an important step in addressing many of these changes. There is still time to run such a projection, and if your tax situation is relatively simple, it can even be done via the IRS website. If your tax return involves a small business, consider contacting our office to review your financial and tax situation. If you own a small business you could potentially benefit from the 20 percent deduction on profits.
2. Review contributions in your 401(k) or other retirement plans since the IRS has increased the 2019 contribution limits.
- The IRS has increased the 2019 contribution limits so you may want to consider increasing your contributions to lower your taxable income - the maximum annual limit for these plans is $18,500 in 2018 and $19,000 in 2019. The more you contribute to these plans, the less taxable income you will claim come tax time.
- Please contact our office if you would like to increase your contribution. For more information about the 2019 contribution limit changes please check out our latest blog post
3. Max out contributions to an existing Traditional IRA or Roth IRA
- The maximum contribution limit in 2018 for both a traditional IRA and a Roth IRA is $5,500; if you're 50 or over, the maximum is $6,500. Some additional limits may apply depending on income.
- The IRS has increased the 2019 contribution limits to $6,000 and $7,000 for people age 50 and up. Click here to see a detailed chart of the new limits
- Although you have until April 15, 2019, to make those contributions, it's a good idea to have a plan in place now.
- Compare Traditional and Roth IRA's
4. Roth IRA Conversion
- If you're in a lower tax bracket this year than you expect to be in the future, convert your IRA or tax-deferred employer plan to a Roth IRA. By doing so, you will pay income tax on the converted amount but then you never have to pay tax on the account again.
- Be sure the converted amount is small enough to keep you in that low tax bracket. 2018 Financial Data Chart
5. Take your Required Minimum Distribution if you are 70 1/2 or older and retired
- This applies for any retirement account, unless you are still working.
- For more information, visit the IRS website - Required Minimum Distributions
- Questions about RMD's
6. Rebalance your portfolio
- Make sure your risk tolerance aligns with your financial goals.
- You can offset the taxes to capital gains by selling off poor-performing investments at a loss.
- Can deduct up to $3,000 in capital losses against ordinary income if those losses exceed gains.
- Be careful: There are distinctions between short- and long-term capital gains/losses. Check with your advisor to see if this strategy applies to your account.
7. Take advantage of the Annual Gift Tax Exclusion by making a gift to family
For 2018, the annual gift tax exclusion allows an individual to give up to a $15,000 gift ($30,000 for married couples) tax-free and without counting toward the individual lifetime exclusion. In 2019, the annual gift exclusion amount will remain the same.
8. Consider establishing a 529 College Savings plan
Parents or grandparents looking to support their children’s future educational costs commonly look to 529 accounts as a great way to allow funds to grow tax deferred for several years. They can then be withdrawn tax free to pay for educational costs for the child. Gifts to a child’s 529 account are subject to the annual exclusion amount of $15,000 per person per year, but these accounts also have the unique ability to allow individuals to front load five years’ worth of gifts at once, up to $75,000 per person.
From a year end planning perspective, families wishing to take advantage of this front-loading rule that haven’t contributed to a child’s 529 this year can gift one year’s worth of annual exclusions before December 31, then gift an additional $75,000 to the child’s 529 plan after the first of the year to cover the next five years. With the ever-rising cost of college tuition and expenses, funding these types of tax deferred plans early can pay off immensely down the road.
- IIS Financial Services works with many 529 plans, however, if you’re a Maine resident you should take advantage of the grants held with the NextGen College Savings Plan. 2018 NextGen Grant programs
- There are many types of matching grants, and any baby born in Maine is entitled to an automatic $500 grant from the Alfond College Challenge Foundation.
- More information on saving for college.
9. Make Charitable Contributions
What better time of year to donate to your favorite 501(c)(3) organizations- 'tis the season for giving, after all. Donations can lower your income, which in turn may mean a lower tax bracket and more tax breaks.
- If you're 70 1/2 and older, you can donate up to $100,000 from your IRA, count it towards your RMD, and exclude it from your adjusted gross income
10. Double- check your Estate Plan including beneficiaries on any policy or account
Life moves fast, and as your circumstances change you may find yourself with new things to protect, or maybe even things that no longer need protection. It’s a good idea to review your insurance and estate plan from time to time to make sure your beneficiaries are still up to date, it’s still covering what you need it to cover, and nothing more. Here are three things in particular you’ll want to review:
- Life Insurance - A change in circumstances, such as a new child, a new house, a windfall, a marriage, or a divorce can significantly change your need for life insurance. If you’ve been through any big changes or think you should make a policy change. Please click here to get a free term life quote
- Disability Insurance - If you’ve changed jobs or had a significant change in income, you may need to update your coverage to make sure you’re fully protected
- Estate Plan - The same changes that would trigger a review of life insurance should trigger a review of your will and other estate planning documents. This is simply to make sure that your family will always be cared for in the way you want. Estate Planning Checklist
Keep in mind this list is not necessarily all-encompassing, but it does serve to help you keep your financial plan in mind, even during the busy holiday season. As always, check with a tax professional regarding any decisions which may impact your taxes. If any one of these financial moves raises questions, please feel free to contact us.