With the end of2019 drawing near, it’s time to figure out how to be financially wise to ourbest advantage.
For those of youover 50, it’s time to put money into your own or a spousal IRA. The limit is $7,000,and though you do have until April 15th of next year – it’s best to doit now.
Do you have anemployer sponsored plan – such as 401K, 403B, or 457 – with a maxed out self-contribution of $19,000? You have roomto put in another $6,000 as “catch up” if you are over 50.
In a SIMPLE plan,you can contribute up to $13,000 or 25% of your income. If you are over 50, youcan contribute an additional $3,000.
Fund your H.S.A.where individuals can get $3,500 in and families up to $7,000. If you are over55 – you can add an additional $1,000 to both the individual and familycontribution.
If you are age 70 ½or older, and don’t take your IRA distribution, you get penalized 50% of whatyou should have withdrawn, and then taxed on that amount. Your RMD is based onthe IRA account value as of December 31st the previous year.
It is consideredordinary income on your tax return. If you want to keep it off your tax return,give it away to a qualified charitable organization. This lowers your tax andimpacts what you will pay for Medicare premiums.
For those whoaren’t familiar, the standard deductions went up in 2018. That’s $12,000 perindividual with an extra $1,300 if you are over age 65. So, for a marriedcouple over the ages of 65 your standard deduction is $26,600. You may want toget creative and lump your donations into 2019.
Here’s an example:
If a couple overthe age of 65 has $8,000 in state, local, and property taxes, $2,000 indeductible medical expenses, $6,000 in mortgage interest expense, and havegiven $8,000 in charitable contributions so far, their itemized expenses add upto $24,000.
If this were year-end,they would be better off taking the standard deduction. If, however, theywanted to use a donor advised fund, or “lump” donations into 2019, they couldgive cash or appreciated assets away this year. This would increase the amountthey could claim on an itemization schedule and lower their taxes.
Using the DonorAdvised fund gives you the benefit of the tax deduction in the year thecontribution is made, but you have to choose the organizations that you want toreceive funding into next year or beyond. You would then take the standarddeduction in 2020.
Interest ratesticked down a bit lower this fall. If you have put off the idea of refinancing,now is probably a good time to look at it again.
There are manythings to consider. How long do you anticipate being in your home? What type ofmortgage do you have now? What would the closing costs be? What are your cashflow or income needs?
Look at anyinvestments that are exposed to taxation (outside of your retirement accounts).You can strategically rebalance your portfolio in a way to minimize taxation.
If you have paperlosses on stocks or mutual funds, you should be able to deduct up to $3,000 inlosses from your ordinary income and carry forward any unused amounts to futureyears. If you have gains in the same type of investments, look at selling thembefore the end of the year.
If your taxableincome (which would include the gains from a sale) keeps you in the 10 or 12%tax bracket, you would not be taxed on long-term capital gains.
Taking income off ofthese accounts? Now may be an opportune time to harvest gains and build upcash, even if you do have to pay 15% on the gains. If you are still in yourworking years and have gains in your brokerage account, consider harvesting andrepositioning into your tax sheltered accounts.
If you havechildren or grandchildren in lower tax brackets, it may make sense to gift themstock holdings instead of giving them cash for the holiday season. This couldbe a learning opportunity or a way to help fund advanced education.
The cost basis getsgifted to them as well, but if they are in a lower tax bracket and sell theholdings, they would not be taxed on the gain. If you are in a higher taxbracket, you avoid paying taxes on harvesting the gain.
On another note, itmight be time to close down the memberships, subscription services, or appsthat you didn’t use this year. Additionally, look at consolidating accounts.
Do you have old,employer sponsored plans that could be rolled into your own personal IRA? Whatother financial tools do you have that are either no longer serving you, orneed to be recalibrated to fit into your current life season?
Consider getting aguide and advisor to help you discern the details of everything mentioned above.Don’t do anything in a vacuum, but in the context of your entire financiallife. Look at what 2020 has in store: what opportunities you are lookingforward to, what challenges may lie in wait.
Be pro-active in aworld that vacillates towards reactive. Look at what you accomplished thisyear, or what you are proud of.
Everything hasfinancial implications. It may have been a positive conversation with a familymember about finances. It may have been a purchase, or a decision not to make apurchase. What do you want to replicate in 2020 and what do you want to leavebehind?
When you sitdown and look at your finances, what makes the most sense to do to minimizetaxes? Do you have a trustworthy financial advisor to help you out? Whatfinancial tools have you used in previous years? Which of them worked for you –which didn’t? Please share with our community!
