2018 is coming to a close. While it is certainly a lot of fun to think about holiday parties, gifts, and time with family, it is also very important to remember to get your finances in shape for 2019 and beyond. Use this handy end of year checklist to prepare a financially successful 2019.

  • Review your retirement plan contributions. If you’re able and haven’t maxed out your 401(k), now is the time to make an additional contribution. If you’ve maxed out your 401(k) and qualify for a Roth IRA, now is the time to start or max out that account. Contribution limits for a 401(k) in 2018 are $18,500 for those younger than 50, with an additional catch up contribution of $6,000 for those 50+. Contribution limits for a Roth IRA in 2018 are $5,500 ($6,500 if you’re 50 or older). Note that contributions phase out for individuals with an adjusted gross income (AGI) between $120,000 – $135,000 ($189,000 – $199,000 for married filing jointly) to contribute to a Roth IRA for the 2018 tax year.
  • Health savings. If you have a Flexible Spending Account (FSA), remember that FSA funds are “use it or lose it” dollars, so you must spend the money on qualified expenses before December 31, 2018 or the funds will disappear. If you participated in a High Deductible Health Plan (HDHP) in 2018, you may be eligible to save for qualified medical expenses in a Health Savings Account (HSA), even if you have an FSA. The IRS defines a high deductible health plan as any plan with a deductible of at least $1,350 for an individual or $2,700 for a family with a maximum out of pocket of $6,650 for individuals and $13,300 for families. Unlike FSA accounts, contributions to HSA accounts are available until used. In addition, HSA funds are “portable,” meaning they stay with you even if you change employers or leave the workforce. If you have an HSA and have deposited less than the maximum contribution of $3,450 for a self-only HDHP coverage or less than $6,900 for family HDHP coverage, you can make an additional contribution for 2018 until April 15, 2019. Note that if you are over the age of 55, you can contribute an additional $1,000 to your individual or family HSA account.
  • Consider a Roth conversion. For clients who believe their current tax rate is lower than their anticipated future tax rate, we often recommend looking at converting funds from a Traditional IRA account to a Roth IRA account. When you convert from a Traditional IRA to a Roth IRA, you pay income tax on the amount you convert, but because the funds are deposited into the Roth IRA within 60 days, there is not a 10% early withdrawal penalty. Converting to a Roth IRA will ensure that you will not owe additional taxes on the converted funds during retirement, reducing your future tax burden.
  • Plan your 2019 retirement plan contributions. For clients who are not maxing out their retirement plan contributions, we recommend incrementally raising your contribution level every year until you are contributing the maximum. Now is the time to submit paperwork to change your contribution levels starting in January 2019.
  • Year end charitable contributions. At the end of the year, it is relatively easy to estimate your income and projected tax situation. Use this information to make wise decisions regarding charitable contributions. For example, if you are over age 70.5 and must take a required minimum distribution from your retirement accounts, you can convert that distribution to a charitable gift and take a tax deduction. In order to qualify for the deduction, checks from the IRA must be made out to the charity. If you are itemizing your deductions or are close to having deductions at a level that requires itemizing, you might want to consider doubling up your charitable contributions in 2018, then skipping 2019.
  • Taxable gains and losses. It is important to monitor taxable gains/losses and their impact on your Modified Adjusted Gross Income (MAGI), especially if you are collecting Social Security income. Tax loss harvesting can allow an investor to reduce his or her MAGI, therefore decreasing the investor’s tax burden. When tax loss harvesting, an underperforming security is sold, and a similar security is purchased within 30 days to ensure a balanced portfolio. Be sure to understand the “wash sale” rule, which states that the tax write-off will be disallowed if an investor buys back the same security or a “substantially identical” security within 30 days. In addition, there are a variety of strategies that can be used to offset short and long-term gains. Those in higher tax brackets might want to harvest losses now to lower their current tax liability. Gains may be harvested without wash sale rules if you are in a lower tax bracket. This raises your basis, so that if you plan to be in a higher tax bracket in the future, you can sell with a lower tax. It is important to fully understand your tax situation before determining how to apply tax gain or loss harvesting to your personal financial situation.

You and your loved ones will benefit from an annual year-end review of your financial situation. We typically start this process in October so that our clients can be set up for the next year by December. At the holidays, there is no better gift you can give yourself.

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