As 2020 approaches, it’s time to review your financial strategies

October 18, 2019

"This time of year presents the perfect opportunity to review and possibly adjust your financial planning strategies," writes Jeff Witz, CFP.

What are some financial planning tasks I should focus on before year end?

We are now in the final 2 months of the decade. Every year, we like to present a list of year-end tasks everyone should cross off their checklist. This time of year presents the perfect opportunity to review and possibly adjust your financial planning strategies. You should update your accounts and check in on where you stand with many of the goals you set at the beginning of the year.

Check on the status of your emergency fund. Did you need to dip into it at all this year? Have your necessary expenses changed? It’s always a good idea to review the balance of the account as well as your budget to see if additional funds need to be added to bolster the account. The general rule of thumb for emergency funds is to have 3 months of necessary expenses if you are a dual-income household and 6 months to a year if you are a single-income household.

Max out your retirement accounts. You have until the tax filing date next spring to make a 2019 contribution to an individual retirement account (IRA), but 401(k) and 403(b) contributions are only deductible when made in the same calendar year. The 2019 contribution limit is $19,000 for 401(k)s and 403(b)s and $6,000 for IRAs. If you are over age 50, catch-up contributions may be available as well.

Also by Jeff Witz, CFP: How term life insurance can help ensure financial goals are met

Use the remaining money in your Flexible Spending Account (FSA). If you still have money set aside in a flexible spending account for health care or dependent care expenses, it is important to use those funds before the end of the year or risk forfeiting the money. Some employers offer a grace period into the spring of the next year or a $500 FSA carry-over from one year to the next, but most do not.

Make contributions to your children’s 529 accounts. College costs continue to rise, and it is important to start saving early if you hope to reach your college funding goals. Additionally, some states offer a state income tax deduction if you are a resident of that state and contribute to its 529 plan. In some cases, the tax savings can be substantial.

Designate those individuals to whom you wish to gift assets. The annual gift tax exclusion is $15,000 for 2019 ($30,000 for married couples). You can gift this amount to any number of individuals without having to pay gift tax or have it count against your lifetime gift and estate tax exemption.

Next:Make charitable donations, harvest investment lossesMake charitable donations. Giving to charity can be a very powerful tax-savings tool. Check and see if you have any appreciated investment assets that you could gift instead of cash. This way, you avoid paying capital gains tax on those investments, and you get to claim a deduction for the full value of the donated asset. When the charitable organization sells it, there’s no tax to them. Be aware, however, that under the new tax law, you may need to donate a substantial amount of assets to be eligible to claim a charitable deduction on your tax return.

Harvest investment losses. Do you own stocks and other marketable securities outside of your retirement accounts that have lost money? If so, consider selling those losing investments to lower your 2019 tax bill. This strategy allows you to deduct the resulting capital losses against this year’s capital gains. If your losses exceed your gains, you will have a net capital loss. You can deduct up to $3,000 of net capital loss (or $1,500 if you are married and file separately) against ordinary income, including your salary, self-employment income, and interest income. Any excess net capital loss is carried forward to future years and puts you in a position for tax savings in 2020 and beyond.

Read: Setting up a trust confers several financial advantages

Update beneficiaries. If there has been a major change in your personal life, such as a recent marriage or divorce, birth or adoption of a new child, or death in the family, you may need to revise the beneficiaries on your retirement accounts and life insurance policies. You may also need to update your will and power of attorney documents.

These are just a handful of financial issues to consider as we approach year end. Your financial and legal advisers can run through a more comprehensive checklist of planning options based on your personal circumstances. 

The information in this column is designed to be authoritative. The publisher is not engaged in rendering legal, investment, or tax advice.

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