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The Year-End Financial Wrap-Up

by on December 08, 2019 5:00 AM


By Brittany N. Cox 
Associate Advisor at Nestlerode & Loy, Inc.

This time of year involves a lot of wrapping. We are wrapping gifts, wrapping up the year, and even wrapping up a decade. With holiday spending in full swing and tax season on its way, you’ll want to include a financial wrap-up, too. Doing this before the end of the year gives you the chance to make any necessary changes for 2019 and set yourself up for 2020. I’m going to review some important financial items to wrap up before year end.

If you are employed, you may be able to make additional contributions to your 401(k) retirement account. The maximum amount you can contribute to a 401(k) for 2019 is $19,000. This warrants a potential $4,750 tax savings for someone in the 25% tax bracket. If you are over 50, you are allowed to contribute an additional $6,000, making the maximum contribution $25,000. You won’t pay any taxes on the money you contribute or the money it earns until you withdraw it. Please note: a Roth 401(k) contribution won’t provide a tax break this year, but your money will grow tax-free and be withdrawn tax-free in retirement. Either way, you are making steps toward your retirement goal.

If you don’t have a 401(k) through your employer, you may be able to save for retirement by contributing to a traditional IRA. This year, you are allowed to contribute up to $6,000 if you are under age 50 and $7,000 if you are 50 or older. Another added benefit is that you don’t necessarily have to be employed to contribute to an IRA. You may contribute to an IRA if you have a working spouse who has taxable income greater than your contribution amount. Alimony is also considered income, so an unemployed person receiving alimony may still contribute.

Do you have an HSA? Check in with your plan administrator or HR. HSA contributions are treated to triple tax benefits. Your contributions are made with pre-tax dollars which reduces your taxable income and the earnings and withdrawals are free of federal tax if they are used to pay for qualified medical expenses. A great feature of this contribution is that this account does not operate on a use-it-or-lose-it basis, so what you don’t spend can be invested and has the ability to grow to help pay for future medical expenses.

During the year, it is helpful to keep track of your donations to charities in all forms. If you itemize your taxes, donations to charities from a taxable account can reduce your tax burden. Something to consider is a gift of appreciated securities that you have held for at least one year. This may entitle you to a tax deduction if you qualify and also helps to alleviate capital gains tax.

If you are retired, it is important to make sure you have satisfied your required minimum distribution. Once you reach age 70½, you are required to begin taking an RMD from your tax-deferred retirement accounts. These distributions must be taken by Dec. 31 each year. Failure to take your RMD will result in a tax penalty of up to 50% of the amount not taken. An option for your RMD related to gifting is a QCD. A Qualified Charitable Distribution can be made to a charity of your choice to satisfy your RMD and the best part about it is that this distribution is tax-free. This is another tax strategy to consider as you wrap up the year.

A meaningful gift to consider for the holiday season is a college savings contribution for your children or grandchildren. The gift tax exclusion is $15,000 for 2019. Annual gifting can be an important part of tax and estate planning. You should consult with your accountant to explore gifting options and their benefits to you. 

Of course, it is important to also review your complete financial picture whether you are retired or not. For employed individuals, this is a great time to evaluate and review your goals. Whether your goal is retirement, buying a home, sending a child to college, or any other financial goal, an annual review will help to identify changes that can be made to stay on track to meet your goal. For retired individuals, it is a good time to review your income plan and investment strategy. A discussion with your financial advisor is beneficial to be sure you are on the same page.  It is a good time to make them aware of any changes to your situation for 2020.



Brittany Cox is a Registered Investment Advisor who works for Nestlerode & Loy, Inc., State College. She serves clients in Centre County and all of Pennsylvania as a fiduciary, fee-based advisor. She is a graduate of the Pennsylvania State University with a BA in business with a focus on financial services. Brittany enjoys working with clients for retirement and college planning. Brittany can be reached at [email protected]
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