Year End Planning – Important Pieces to Check Off Your List
Published by Kerry Meath-Sinkin
Are you feeling full and overwhelmed as the year end approaches? Between holiday fairs, events, and gift planning, I’m feeling it. There is a lot going for this time of year but wrapping everything up financial is an important piece to check-off. Throughout the year we review so many aspects of our clients planning. We thought it would be helpful to share some of those pieces that are relevant for almost everyone. Now is a great time to make sure you have crossed those off your list!
| Action Item | Details | Done? |
| Get Your 401(k) Contribution Right |
Are you maxing out your employer match? Are you contributing the right amount to your 401(k) to lower your taxable income? Or if you are in a lower tax bracket are you contributing the right amount to your Roth 401(k) |
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| Roth or Traditional IRA Contributions |
If you have additional amounts you want to save, consider an IRA contribution. Here are some important pieces to remember. Roth IRA Contribution – Remember with a Roth you pay the tax upfront, but then you can pull this out in retirement tax free, this can be a big deal! Individuals making less than $122,000 (married couples making less than $193,000) who have earned income, can contribution up to $6,000 per person. Traditional IRA Contribution – Remember based on your tax bracket you can get a tax deduction for your contribution but will have to pull this out and pay tax. Individuals making less than $64,000k can take a full deduction (married couples less than $103,000), with a phaseout until no deduction is possible. You can always visit the IRS website to read more. |
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| Employee Benefits | Medical enrollment is usually year-end. Make sure you review your expenses and get your plan right in the coming year. | |
| Max Your HSA | If you are able, consider maxing out your HSA. This is one of the only vehicles to save pre-tax, grow on a tax deferred basis, and pull money out for medical expenses tax-free. Individuals can contribute up to $3,5000 and families can contribute up to $7,000. Just remember you can have a medical FSA and HSA. | |
| Flexible Spending Account – Spend it! | If you have a flexible spending account, double check the rules. Most FSA’s require you to use your money, or risk losing it. | |
| Review Your 2019 Itemized Deductions | With nearly double the standard deduction from the Tax Cuts and Jobs Act, you may no longer be itemizing your deductions. But it always makes sense to double check medical bills, home purchases, or charitable deductions to see what makes sense for you. | |
| Tax-Loss Harvesting | While it is recommended that you review your losses throughout the year, if you haven’t done so, now is a great time. The IRS allows you to take up to $3,000 per year. If you have taxable gains, you can also take losses to offset those gains. | |
| Charitable Giving | With the Tax Cuts and Jobs Act, it is more important than ever to make sure you are reviewing how you get still get tax benefits. Consider bunching strategies if you are making larger contributions. Or if you are in retirement, consider a qualified charitable distribution to lower your income. Click here to check out another blog reviewing bunching strategies in more detail. | |
| Pay Off Home Equity Indebtedness | If you have mortgage interest on the debt principle you borrowed and it was not used to acquire or substantially improve your home, this is no longer deductible. Consider paying down your debt. | |
| RMD’s | For those of you in retirement, make sure you are taking your RMD’s! |
Good to Double Check – But Not Essential for Year End
| Action Item | Details | Done? |
| Estate Planning – Anything new? | End of year is a great time to review your trust, will, and other legal documents. Is everything up to date? | |
| Beneficiaries | Did you have any children or grandchildren in 2019? If so, make sure you get those updated with any applicable accounts. | |
| Insurance review | Check that your insurance is up to date. Are any changes needed to your policies? Here we think about death, disability, and umbrella insurance policies. | |
| Emergency Fund | We always recommend at least three months of expenses. If your expenses changed this year, make sure your emergency fund matches. | |
| Asset Allocation | Make sure your allocation still makes sense for you. If you have any questions about what kind of risk you should take on, consider checking out our risk tolerance questionnaire. | |
| Self-Employed | If you are self-employed or a small business owner. Do you have everything set up whether it’s a 401(k), defined benefit plan, IRA, SIMPLE IRA, or SEP IRA. |
Disclaimers:
Some IRA’s have contribution limitations and tax consequences for early withdrawals. For complete details, consult your tax advisor or attorney.
To qualify for the tax-free and penalty-free withdrawal or earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59 ½ or due to death, disability, or a first-time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.
For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC, CWM, LLC nor any of its representatives may give legal or tax advice.
Kerry Meath-Sinkin, CFP®AIF®, is a wealth advisor based in Minneapolis. She graduated with honors from Brown University, and works with clients in the Twin cities and nationwide. Kerry believes in a holistic approach to finance. Kerry also has a passion for healthy living, is a certified Ayurvedic practitioner, and public health educator. Click here to learn more about Kerry.