Ten Financial Things To Finish the Year Strong

Jay Gershman |

Jay L. Gershman, Retirement Visions LLC, West Hartford

Despite setting New Years resolutions in January, inevitably new clients show up in December for complete planning review. During our factfinding session, we often discover issues that require attention but unfortunately the calendar does not cooperate, and time expires. To prevent that from happening to you, let’s look at ten issues that should be addressed before year end that might benefit you. To begin, have a review of last year’s taxes and discuss strategies that may benefit 2019. Many of the following strategies may arise from that meeting.

  1. Required Minimum Distributions- For taxpayers over 70 ½ with IRAs, each year you must withdraw a required minimum. Except for the first year, you only have until December 31st to withdraw the funds. The rules can be very tricky since funds are required to be withdrawn from each type of retirement account calculated separately- IRAs, 401(k) and 403(b)s.  There are harsh penalties for not taking the full required amount.
  2. Donations to charity- For people who itemize, additional donations to a charity will reduce your taxes based upon your tax bracket. However, those who don’t have enough deductions and take the standard deduction have the option (if they are over 70 ½) of using their Required Minimum Distributions from their IRAs to make charitable donations.
  3. Making all quarterly estimated payments- Let’s assume you realize in November that you have severely underpaid your state and Federal tax estimates. How do you make a payment due in April, June or September in November without a penalty? There is one possible remedy. If you are over 59 ½, you can take an IRA distribution and have the entire amount withheld for tax purposes. The amount withheld will be considered to have been paid in prior quarters.
  4. Gifting to Children- Many people have adult children and young grandchildren they would like to help financially. One of the best ways to accomplish this goal is through a regular gifting plan. In 2019, gifts of $15,000 per person to each beneficiary is allowed without filing a gift tax return. Unfortunately, you must complete the gift by year-end or lose that years $15,000 annual exclusion.
  5. Contributions to 529s- Contributions to 529 education plans are considered gifts as well. Therefore, the above-mentioned gift rules apply. However, a special rule allows for five years of gifts to be contributed at one time without the gift tax being required. However, you must wait another 5 years before making additional gifts of any kind to that beneficiary. Once again, the calendar year rule applies.
  6. Withdrawing from 529 plans to pay for college- In many cases, parents have 529 plans pay colleges directly. However, if your student lives off campus you have other eligible expenses that can be reimbursed. However, account owners must reimburse themselves in the same calendar year the expenses were incurred.” Keep records of all expenses in case you are audited.
  7. Preparing to file for financial aid- Most parents file for their student’s financial aid in January of their senior year based upon assets as of the time of the filing. However, legitimate changes can be made to assets and liabilities that can improve your chances of receiving additional aid. Those changes must generally occur before the year ends and in some cases it’s best by the end of the junior year to avoid reporting additional income that may have occurred as the result of the changes. Consult a college financial aid planner for more in depth information.
  8. Contributions to 401(k) plans- Since employer plan contributions must be made through payroll deduction, it is difficult to make up for lost time if you decide late in the year you would like to “max out” the plan. Most plans allow those under 50 to contribute $19,000 and those over 50 to contribute an additional $6000 make up. Some employers allow bonuses paid before year-end to be contributed to the plan on a one-time higher percentage.
  9. Fund your Health Savings Account in full- Since Health Savings contributions are double tax-free (tax deductible going in and not taxable when expenses are paid) these contributions are considered a priority for those eligible because they have a high deductible health plan. Luckily, these contributions can be made until your April tax filing.
  10. Payment of larger out of pocket medical and dental bills- If you are on the cusp of itemizing your expenses and you’ve had a large medical or dental bill it might make sense to pay that bill before year-end to get the added deduction. Keep in mind, you can only write off medical expenses in 2019 in excess of 10% of your Adjusted Gross Income.

That’s my ten but there are more strategies that relate specifically to business owners, those not eligible for ROTH IRAs, people nearing Social Security age or those moving out of state. Feel free to schedule a brief meeting before year-end to see how you can benefit from planning. Don’t wait too long, the clock is ticking!

Jay Gershman is the Owner and Founder of Retirement Visions LLC, a West Hartford-based financial planning firm that focuses on comprehensive life planning and financial management. For more information, visit www.allset2retire.com. Information and advice are for guidance only and opinions expressed belong solely to the author. Securities offered through Securities Service Network, LLC. Member FINRA/SIPC. Fee-based services are offered through SSN Advisory, Inc., a registered investment advisor.