End of Year Financial Checklist: 5 Things to Consider

End of Year Financial Checklist: 5 Things to Consider

December 05, 2019
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The end of the year is often a busy time filled with shopping, parties, events, and celebrations. The last thing that most people want to do is a financial checkup. Unfortunately, putting off certain financial decisions could cost you a lot more than you realize and it is worth taking the time to check these 5 areas to make sure you are financially ready for the end of the year.

  1. Do you need to make any charitable donations before the end of the year? The end of the year is quickly approaching and any charitable contributions that you want to go toward your 2019 taxes need to be made sooner than later. The standard deduction for single taxpayers is $12,200 in 2019 ($24,400 for married filing jointly). [1] While many taxpayers have stopped itemizing and started taking the higher standard deduction, it is worth talking to your Financial Planner and your Tax Consultant to determine if you might be eligible for itemizing your deductions. If so, making a charitable contribution before the end of 2019 might be in your best interest.
  1. Have you contributed the full amount that you would like to your Kids/Grandkids 529? One of the many benefits of opening a 529 Plan for your child or grandchild is that contributions are deductible on your state income taxes in many states. The specifics vary from state to state so it is good to check with a Tax Consultant who is familiar with the guidelines for your state before making a contribution. Contributing to a 529 Plan is a great way to receive a tax benefit now for yourself while benefiting a special child with money for higher education in the future.
  1. Have you contributed the maximum amount that you would like to your 401(k)?  If you make salary deferral contributions to an employer based retirement plan, you will need to make those contributions before the end of the year in order for them to apply to your 2019 taxes. You may need to notify your payroll administrator of additional deferrals that you would like to make before the end of the year. The 401(k) contribution limit for 2019 is $19,000 ($25,000 if you are 50 or older). [2]  
  1. Do you need to make a Roth IRA conversion before the end of the year? If you currently have an IRA and would like to convert some or all of it into a Roth IRA, you may consider converting at least some of the funds before the end of the year. It is important to recognize that converting funds from a Traditional IRA to a Roth IRA is treated as a taxable distribution. You will be required to pay taxes on the full amount that you convert in the tax year that it is withdrawn. I recommend discussing it with your Tax Consultant and Financial Planner prior to making a conversion. I typically advise that clients carefully consider how much to convert each year in order to avoid reaching a higher tax bracket. I often recommend a strategy of converting a portion of the assets each year until the desired amount has been fully converted in order to avoid the tax consequences of converting it all in the same year.
  1. Are you or someone you know over the age of 70 ½? Have you taken your Required Minimum Distribution (RMD)? One of the biggest mistakes that you can make is failing to take your RMD. When you turn 70 ½ you are required to take distributions from your qualified retirement accounts. You can always take out more if you want to, but, failing to take the minimum will lead to a 50% excise tax.[3] For instance, if your RMD was $10,000 you would be subject to a $5,000 excise tax if you failed to withdraw the funds in time. That is a very steep penalty! That is why it is so important to ensure that you withdraw the proper amount each year. If you have multiple qualified retirement accounts, you may be able to take your entire RMD from one account, assuming you take the total amount required from all accounts. If you took more than was required last year, you will still have to take an RMD this and every year. If you are unsure what your RMD is, you can use an RMD calculator to calculate it yourself or you can talk to a professional such as a Financial Planner or Tax Professional who should be able to help you calculate the correct amount. One final note, if you do not need the funds and would like to receive a tax break, it is possible to donate some or all of your RMD to a charitable organization.

Spending a little time now to address these five areas to ensure that you have taken the proper steps prior to the end of the year could benefit you greatly as you prepare for tax season. If you would like some help to determine whether you have completed your End of Year Financial Checklist, please contact us and we would be happy to discuss your personal situation.

Happy Holidays!

[1]https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2019

[2]https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits

[3]https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds

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