How to Make the Most of Your Money: Last Minute Year-End Checklist

The holiday season is in full swing, and for most of us, our focus has officially shifted to all that comes with it; decorating, attending parties, and rounding out the gift list. It’s also a critical time to be thinking about your money, beyond the holiday shopping budget.

Now before you switch the browser tab back to Amazon, I get it. Finding the time to organize and plan your financial life isn’t likely to be top of mind in the next few weeks. It’s easy to tell yourself you’ll just take a look at things after the New Year and call it a resolution. However, there are some critical financial deadlines that occur at the end of the calendar year. To help, we’ve put together a checklist of financial planning moves you'll want to review before December 31st.

-Take Required Minimum Distributions (RMDs): If you’re over the age of 70½* and no longer working, you must withdraw money from your retirement accounts. This can also apply if you’re younger and the beneficiary of an inherited IRA. If you fail to do so, you’ll be faced with a stiff penalty of 50% of the amount that should have been taken. Make sure to check out specifics regarding RMDs to ensure you’re good to go for 2019.

-Season of Giving: If you already donate to a cause you believe in, you may want to consider the charitable giving strategies available to you. Instead of cutting a check, you can donate appreciated securities to charity to receive a tax deduction and avoid capital gains. If you are taking RMDs but don’t need the money, you can elect to send the funds directly to the charity by making a Qualified Charitable Distribution (QCD). Last but not least, consider a Donor Advised Fund, in which you can receive an immediate tax deduction and also support the charities you love over time.

-Max Out Your Health Savings Account (HSA): Chances are that if you’re reading this, I’ve already made a point of letting you know that I’m a huge fan of HSAs and their amazing tax advantages. Contributions are deductible, grow tax-free, and withdrawn tax-free for qualified medical expenses. If you participate in a high deductible health insurance plan, you can tuck away $3,500 as an individual and $7,000 as a family in 2019. For those 55 or older, you can contribute an additional $1,000 as a catch-up contribution.

-Spend That Flex Money: For those with a Flexible Savings Account (FSA), make sure to check your balance for unused funds. Typically, FSA plans have a “use it or lose it” rule, meaning you must spend that money towards any eligible medical expenses before December 31st. Some plans now offer a grace period or a limited amount you can roll over into the following year, so you’ll want to check with your employer to confirm your plan’s rules.

-For The Kids: If you’ve been considering funding a 529 account for a child or grandchild, now is a good time to do so. Some states offer additional income tax deductions for contributions, but they must be made before year-end. In New York, for example, you can receive a state income tax deduction of up to $5,000 annually as an individual or $10,000 if you’re married. The gift tax exclusion limit (aka the amount you can give away tax-free each year) for 2019 is $15,000 per individual, or $30,000 if you’re married.

-Make Friends With the Losers: Tax-loss harvesting can be a useful tool in reducing your overall tax bill. If you have a brokerage account, any investments that are down in value and sold before year-end can be leveraged as capital losses to offset capital gains. With the way the markets have performed this year, it’s likely you won’t have many losers to choose from (which is a good thing), but it’s still worthwhile to take a look.

-Consider a Roth Conversion: Having an intentional plan regarding when to pay taxes on your pre-tax retirement accounts can provide significant long-term savings. This is a useful strategy we often evaluate with our retirement planning clients. By transferring a portion of your traditional IRA into a Roth IRA, you can limit the impact of your future RMDs and have that money grow tax-free. If your income was lower in 2019, it may make sense to consider paying more tax now by completing a partial Roth conversion up to your marginal tax limit.

-Rebalance Your Investments: Implementing the proper asset allocation to match the amount of risk and potential return of your investments to your specific financial situation is an essential first step in investment management. The problem is, over time that “perfect” mix of investments can drift from where it started, and may not remain appropriate for what you want to accomplish. By periodically rebalancing your accounts, you can effectively minimize risk by bringing the percent of each asset class back to how you originally intended. With the strong performance of the markets this past year, now is a great opportunity to make sure your investment plan is in line with your financial goals heading into the New Year.

*Congress has recently announced the passing of the SECURE Act, which contains a provision to delay the Required Minimum Distribution start age to 72. Assuming the Act gets signed into law, this will go into effect on January 1st, 2020.

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^{Brett Koeppel is a CERTIFIED FINANCIAL PLANNER™ in Buffalo, NY and the Founder/President of Eudaimonia Wealth, a}^{Buffalo, NY fee-only financial planning}^{and wealth management firm. As a fee-only, fiduciary registered investment advisor, Eudaimonia Wealth provides independent, objective financial planning and investment management to help families gain financial clarity by aligning money and purpose in their lives.}

[Feature Photo by Nick Morrison on Unsplash]