Close Out Your 2019 Year-End Financial Checklist
With the end of the year just around the corner, now is great time to look back at what has happened over the past 12 months and ensure everything is in order for the new year. Here are some important items from your GuideStream Team, to review before moving into 2020.
- If you are retired, make sure you have taken all required minimum distributions (RMDs).
RMDs may be one of the most important items to review when going over your finances at the end of the year. Standard IRAs require these distributions be taken annually after the year you turn 70 ½; standard 401(k)s require them annually after you retire or turn 70 ½ (whichever is earlier). Failure to take an RMD will trigger a 50 percent excise tax on the value of the RMD.
- Maximize contributions to an IRA and employer retirement plan for the year.
Both IRAs and 401(k)s have annual contribution limits. If you find you have excess savings and have not reached your annual limit, it may be a good idea to make additional contributions. Similarly, you may also consider making greater monthly contributions to your accounts next year, spreading out the cost of contribution. The deadline for IRA contributions for 2019 is April 15 of 2020; 401(k) deadlines may be restricted to the calendar year, depending on your employer.
- Consider converting a traditional IRA to a Roth IRA.
Did you have a good tax year? Now may be an opportune time to convert a portion (or all) of your traditional IRA to a Roth IRA and pay your taxes at a lower rate. It is important to understand, however, that Roth accounts have contribution limits placed on them, so keeping a traditional IRA may still be beneficial. Before making any changes, consider seeking the help of a professional accountant who can help you with this conversion and calculate your new tax liability.
- Review your tax withholdings.
Did you have a major life change (employment change, marriage/divorce, a new child) that may impact your income tax? Check to make sure your tax withholdings have been properly adjusted. Having low withholdings can lead to tax penalties while having too high of withholdings prevents you from accessing your money until your tax return is filed.
- Estimate your AGI.
Determine your adjusted gross income either on your own or with the help of your tax preparer. Your AGI will help determine your tax bracket, which you’ll need for investment and retirement planning.
- Check your flexible savings account (FSA).
The government only permits a $500 annual rollover in an FSA; any excess funds disappear if unused by the end of the year. If you have extra money in your FSA, you may want to schedule necessary medical or dental procedures before the end of the year.
- Check your health savings account (HSA).
HSA funds do not disappear at the end of each year like with an FSA; however, many with few medical needs discover money accumulating in their HSAs faster than they are using it. Consider reducing your contributions to your HSA if your account has reached a comfortable amount and you know of better uses for your money.
- Consider contributions to a 529 plan to fund your children’s/grandchildren’s education.
529 plans allow you to contribute to a tax-free account that may be used to pay for qualifying secondary education expenses.
- Donate to charity as a way to reduce taxes.
You can lower taxable income by 50 percent with a gift to a public charity or by 30 percent with a gift to a private foundation. If your gift exceeds these limits, you can roll over the excess deduction for up to five years.
- Reduce your estate through gifts.
You are permitted to give up to $15,000 ($30,000 for married couples) a year per recipient as an untaxed gift. Gifts above this value will consume part of your lifetime gift/estate tax exemption amount ($11,400,000 in 2019). If a gift directly funds education tuition or pays for qualified medical expenses, it will go untaxed no matter what the value is.