Is it really time to think about the end of the year? Well, there are only three months left and there’s the question of whether you really want to try to jam financial planning in with Thanksgiving and Christmas. So, maybe it’s a good time to think about end-of-year financial planning. Here are a few of the more common things you might want to consider.
401(k) Plan. If you participate in a 401(k) plan, it’s a good idea to see if you’re on track to maximize your savings. If your employer has matching funds, that should be your minimum goal for the year. Contribute enough to rake in every free dollar that your employer is willing to give you. If your budget allows, it’s a great idea to contribute the maximum amount allowed by law to your plan. In 2019 that’s $19,000.
Capital Gains. If you have realized capital gains this year, the associated taxation can be reduced by up to $3,000 by selling some of your losses. (There’s also a carry-forward provision that lets you deduct up to a $9,000 loss at $3,000 annually over three years.)
RMDs. Have you taken your Required Minimum Distributions for the year? If you’re 70½ or older, you must make these withdrawals by the end of the year or face a 50% tax on the amount you failed to withdraw. If you’re younger, but have an inherited IRA (also called a stretch IRA), you’re also subject to these rules.
Charitable Donations. If you itemize your deductions, charitable contributions are a wonderful way to reduce your tax bill. If you’re subject to an RMD, we suggest that you directly transfer money from your IRAs to get the deduction and to avoid capital gains on the transfer!
HSAs. If you have a Health Savings Account, try and fund it to the allowed maximum. This is $3,500 for an individual and $7,000 for a family. If you’re 75 or older, an individual can add an additional $1,000 and a family can add $2,000. HSAs can carry over from year to year, so fully funding them each year makes sense. It may be that your employer contributes to your HAS fund, so be sure to check on that. Finally, if your health insurance does not qualify for an HSA, be sure to consider an FSA (Flexible Savings Account).
529 Plan. If you’re using a 529 plan to save for a family member’s college expenses, don’t forget to make your desired contribution in order to benefit from in-state tax deductions. (For grandkids, don’t forget that you can gift up to $15,000 per year tax free.)
IRA. If you’re still working, try to contribute as much as possible to an IRA. 2019 contribution limits are $6,000 if you’re under 50 and $7,000 if you’re 50 or older. Generally it’s advisable to make a contribution to a traditional IRA if your income level allows your contribution to be made using pre-tax dollars. If you’re earning too much for that, you can still contribute to a traditional IRA using after-tax dollars and then convert it to a Roth IRA for future tax-free distributions.
You can see that there are quite a few things to consider before the end of the year. Some of them involve IRS rules that must be strictly followed. If you’d like some help applying these ideas to your personal situation, we’d be happy to help you think this through. Please visit our website or give us a call at 970.419.8212 so that we can discuss this important topic in a no-charge, no-obligation initial meeting.
This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products. Please consult your tax or investment advisor for specific advice.