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. If you're like many people, you may still be adjusting to the new tax laws that went into effect in 2018. While rates went down for many people, many itemized deductions were limited. That means it's all the more important to get an early start to make the most of the below tax-saving strategies before year-end.
Gifts and Charitable Donations
- Are you thinking about making additional gifts to family or charitable donations in 2019? If so, please let us know as soon as possible. Once we have the paperwork in hand, transfers are typically completed within two to three business days. Given the high volume of gifts around the holidays, we need to have the paperwork by December 20th at the latest to ensure that the transfers happen before the end of the year.
- If you are over the age of 70½, you should also consider ways to make charitable donations directly from your retirement accounts. You can donate up to $100,000 from your IRA, count it towards your RMD, and exclude it from your adjusted gross income
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 and our blog post about this topic below
Review 401(k), 403(b), 457 employer retirement plan contributions
- The IRS has increased the 2020 contribution limits so you may want to consider increasing your contributions to lower your taxable income - the maximum annual limit for these plans is $19,000 in 2019 and $19,500 in 2020. If you’re 50 or older the contribution limits for 2020 have increased to $26,000. 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 2020 contribution limit changes please see below blog post:
Roth IRA Conversion
December 31st is the deadline to complete a Roth conversion. Remember that there are no income limits to completing a Roth conversion. While you may be paying ordinary income taxes on the money now, you will not have to pay taxes on the money converted in the future
Max out contributions to an existing Traditional IRA or Roth IRA
- The maximum contribution limit in 2019 for both a traditional IRA and a Roth IRA is $6,000; if you're 50 or over, the maximum is $7,000. Some additional limits may apply depending on income.
- The IRS has kept the 2020 contribution limits the same.
- Although you have until April 15, 2020, to make those contributions, it's a good idea to have a plan in place now.
Rebalance, Capital Gains & Tax Loss Harvesting
- 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.
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.
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.
Review Beneficiary Designations
Have you reviewed your beneficiary designations this year? Make sure your current designations are still in line with your estate plan and give us a call if we can help you make any related changes.
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.