Don’t freak out!

This list of items to consider before year-end isn’t meant to be overwhelming, intimidating, or confusing.  If you’re anything like me, time seems to go by faster every year, and these last two months are no exception.  These ideas may be old hat to some of you, or ground-breaking to others.  Wherever you are on your financial journey, I hope this gets some conversations started before we welcome a new year.  As always, please consult your CPA for tax advice.

  • Refinance – What’s the current rate on your mortgage? I realize closing costs, appraisals, and title fees are annoying, but don’t lose sight of potential monthly savings given the current interest rate environment.
  • Health Savings Account – Do you have a high deductible health care plan? If so, what’s the status of your 2019 HSA contribution?  This is the ONLY triple tax threat available!  Don’t look at this as just a reimbursement vehicle – this is a powerful retirement tool.
  • College Savings – Interested in making a 529 contribution? This is great time opportunity for grandparents as well, if the numbers make sense.  Contributions may qualify for a state tax deduction.
  • Roth IRA – Contributions for 2019 went up $500 to $6,000 ($7,000 if over 50). This is great opportunity to build your tax-free bucket.  Make too much?  See below.
  • 401(k) Contributions – Does your employer offer a match? If so, make sure you’re getting the full benefit. You still have a few pay cycles left in 2019.
  • Roth 401(k) Contributions – Do you know if your employer’s plan offers this? If not, it might be time to ask.  More opportunities for tax-free withdrawals in retirement?  Yes, please.
  • Roth Conversion – Already have an IRA with basis? Does it make sense to do Roth conversions this year?  Have no idea what this means?  Let’s chat.
  • Student Loan Debt – The deduction for student loan interest in 2019 is $2,500 if you qualify. Having trouble paying your student loans?  Have you asked your provider about income-based repayment plans?
  • ESG Investing – I’m not selling a specific product here. This is an approach to investing that has potential to create societal impact without sacrificing financial returns. Passionate about climate change, carbon footprints, water usage, workplace diversity, supply chain transparency? I could keep going but you get the idea.
  • Self employed? Have income? – There are a handful of options for you to build up your tax deferred bucket (i.e. SEP, SIMPLE, Solo 401(k), Keogh plan).  It all depends on items such as the legal structure of your business, your earnings, how much you want to defer, number of employees, and appetite for administrative items.  Don’t have this set up?  Let’s chat.
  • QCD – Are you over 70 ½ and don’t need the required minimum distributions (RMD) from your retirement account? Take advantage of a qualified charitable distribution (QCD) this year to reduce your tax bill and give your RMD to charity.
  • RMD – Did you inherit an IRA? Or maybe you’re over 70 ½ and have a retirement account that requires you to take minimum distributions (RMDs) – avoid the penalty and don’t forget to take it for 2019.

Are you a high-income earner?  If so, check out some additional ideas below:

  • Backdoor Roth IRA – Make too much for a Roth IRA contribution? If so, this could be a solution.
  • Mega/Super Roth – Do you have a 401(k) at your current employer? Does the plan offer “after-tax contributions?”  I know, it sounds similar to a Roth 401(k), but it’s different in that it allows you to accumulate up to $56K in your account ($62K if over 50), vs the $19K limit ($25K over 50).  Given some of the tax proposals currently on the table, this could be a very powerful tool if you’re aiming to reduce your tax bill at retirement.
  • Do You Itemize? If not, were you close to the new standard deductions that took effect in 2019 ($12K for single filers, $24K for those married filing jointly)? It might be time to talk to your CPA about “bunching” deductions if you haven’t already (i.e. thinking about your taxes two years at a time).  Here are some ideas:
    • Prepay Property Taxes – This may not be as great of an idea given that it’s now capped at $10K, but if you have a tax bill in hand (you can’t forecast it!) you may delay paying it until 1/1 of next year (if permitted), in an attempt to pay two years’ worth in 2020.
    • Medical Expenses – Are you having a baby in 2020? Elective procedures on the calendar?  Expensive prescription drug refills?  If so, it might make sense to put off what you can to take advantage of this deduction so that all of these expenses are incurred in the same year.
    • Charity Contributions/Donor Advised Fund – Already donating on a regular basis? Maybe consider donating every other year if you aren’t consistently hitting the standard deduction.  Not sure who you want to donate to?  A Donor Advised Fund might be a good fit.  Take the deduction in the year the contribution is made, and let the fund manager decide based on your recommendation.

I hope this helps generate some solid conversations for your year-end finances.  If any of this is confusing, or you are left with more questions, schedule a call with me and we can chat before year-end.