With the busy summer season behind us and the holiday season fast approaching, now may be the best time to review your financial affairs to make sure everything is in order.  As most taxpayers pay on a calendar year basis, the end of year is a deadline for many opportunities. Here is a list of items to review now to help ensure you don’t get financially penalized for missing those year-end opportunities.

Retirement Account Contributions

Retirement accounts such as a 401(k), 403(b) and 457 have a year-end deadline for the employee to make contributions. The contribution limit for an individual for 2019 is $19,000, plus an additional catch-up contribution of $6,000 if you are 50 or older. By contributing to a retirement account, you can reduce the amount of income you have for the year and are thus likely to pay less in income taxes. This also allows the contributions to grow on a pre-tax basis. Additionally, many retirement accounts have a Roth contribution option, which elects to not tax a current tax deduction but allows the value of the account to grow tax-free until it is distributed.

Keep in mind that 401(k) contributions must be withheld from wages. If you are paid wages evenly throughout the year and you have not been making contributions to your employer-sponsored retirement plan, you may be limited to your remaining wages for the year. However, if you have been withholding money from your wages for retirement plan contributions, now may be a good time to see if you are on target to hit the maximum and make any changes as needed.

Review Required Minimum Distributions (RMDs)

If you are turning 70 ½ this year, or are older than 70 ½, you may be required to take RMDs from your retirement accounts, generally by December 31. The one exception to this is, during the year you turn 70 ½, the deadline is postponed until April 1 of the following year. The penalty for not making an RMD from a retirement account is 50% of the amount you should have distributed. And you are still required to pay tax on the distribution. Even though the IRS has some flexibility to waive this penalty, help yourself avoid the work and headache and make sure you take your RMD in a timely manner.

An exception to the RMD rule is, if you have a Roth IRA, you are not required to take distributions during your lifetime or the lifetime of your spouse if they elect to treat it as their own at your death.

Review Charitable Contributions

If you want your charitable contributions to appear on this year’s tax return, they must be made before the end of the year. Additionally, Qualified Charitable Distributions (QCDs), which are available to people who are at least 70 ½, must be made prior to the end of the year to count as part of your RMD. By having QCDs sent directly from your IRA to one or more charities, you can make contributions of up to $100,000 per tax year, without having them count as taxable income, even though the money is coming from your retirement account.

Review Your Flex Spending Account (FSA) Balance

If you have funds in a flex spending account, they typically must be used by the end of the year or the balance will be forfeited.  However, some employers will offer a grace period of up to 2.5 extra months after the annual deadline to use your FSA money. If you have outstanding medical bills or have been putting off a qualified medical expense such as laser eye surgery, now may be the time to get it taken care of.  Additionally, a flex account can be used for some medical supplies such as a first aid kit or a heating pad.

Tax Loss Harvest Investments

If you have investments that currently have an embedded capital loss, you can sell them and realize the loss for the current year tax return as long as you don’t repurchase the same investment within 30 days.  Keep in mind however, that the losses are limited to offsetting capital gains or up to $3,000 of ordinary income.

Revisit your tax withholding and estimated tax payments

If you haven’t had enough taxes withheld from your income, now is a good time to catch up. If you generally make estimated tax payments, be sure that you have paid in at least 100% of the prior year’s tax amount or at least 90% of the actual tax amount owed for the current year. If you’re a high earner, with $150,000 or more Adjusted Gross Income, the prior year’s tax amount is increased to 110%.

Take Advantage of the Annual Gifting Exclusion

If you’d like to give a financial gift, to someone else in order to reduce the size of your estate for gift and estate tax purposes, December 31 is the deadline. The current annual exclusion is $15,000 from each individual to each individual. So, if you and your spouse would like to gift money to your two children, the combined gifting limit would be $60,000.

Fully Fund Your Health Savings Account (HSA)

Another way to save on taxes is by funding your HSA. The money you put in your HSA can be contributed tax-free and will not be taxed when withdrawn if it’s used for qualified medical expenses. If you have a high-deductible health insurance plan (HDHP), you can save up to $7,000 in it for a family or $3,500 per individual. If you are 55 or older, you can contribute an additional $1,000. Funds in an HSA roll over from year to year, so if you don’t use them by the end of the calendar year, you don’t lose them.

Fund a 529 Account for Education Expenses

In order to take advantage of any state-income-tax benefits, or to be eligible for the federal gift-tax exclusion for the current year, contributions to a 529 account must be made before the end of the year.

Start Planning for Next Year

The deadline for IRA funding for employee contributions is typically April 15, which is the same as the deadline to file your tax return or to file for an extension. You can contribute $6,000 to your IRA, plus an extra $1,000 if you are over 50. Keep in mind, even if you do file for an extension, the deadline for funding your IRA remains the same. (However, if you are an employer, and you file an extension, you can delay the employer contribution as well.)

If you turned 70 ½ this year and decide to delay your first required minimum distribution, then you have a one-time exception (until April 1 of 2020) to take it without penalty. If you deferred, you are still required to take another RMD by Dec 31 for the current year. Just note that, if you do so, you will have two RMDs in the same year.

Need to Talk?

With all these year-end deadlines and opportunities, now may be a good time to request a meeting with your financial advisor. You can see if you’re invested appropriately and ensure you aren’t missing out on any opportunities. You can also review your tax planning, cash flow, and saving strategies for the year ahead.

At Modera, we’re here to help you with every aspect of your financial life. If you would like to discuss your year-end planning, or any other financial issue, please don’t hesitate to get in touch.


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