What to Do for Your Year-End Financial Planning
October 27, 2019 5:00 AM
by Judy Loy
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By Judy Loy, ChFC®, RICP® and President of Nestlerode & Loy, Inc.

The last quarter of the year brings fall, winter, Thanksgiving and Christmas. Besides the change of seasons and holiday celebrations, people can do several things to save themselves taxes in 2019 or set themselves up for a successful 2020.

Review Your Estate Plan

Estate taxation and rules are ever changing. If you haven’t reviewed your plan with an attorney in the last 10 years, it is important to do so. This is not only important due to the outside changes but also your personal life changes. Perhaps you are widowed, divorced or married since your last update? It is important to make sure with life changes your estate plans change with them so that your wishes are met.

Plan for a Worst-Case Scenario

If you are older, it is a good idea to have your powers of attorney in place at your various financial institutions. Many large banks and brokerages require their own forms and paperwork in a POA situation. Thus, taking care of this setup early can avoid problems for your family later when they are trying to assist you. In this vein, you should also provide your family, executor and POA information on where and who to call if you should become incapacitated. This can make a difficult time a little easier.

Review Your Beneficiaries

In this same mindset, checking the beneficiaries on your retirement accounts is also important. Beneficiaries named on insurance and retirement accounts (employer plans, IRAs, annuities) supersede those named in your will. Older accounts may still have a former spouse named as beneficiary or be missing a youngest child. It may be a good idea to name a primary along with contingent beneficiaries. It is important to name beneficiaries appropriately on retirement accounts and avoid the IRA assets going into your estate.

Gift, but Gift Wisely

Many would like to gift to charities and loved ones for tax benefits and to help those in need. A person can gift up to $15,000 per individual in tax-free gifts. This means a wife and husband could gift $60,000 per year to their son and daughter-in-law. For charities, gifting appreciated stock in place of cash can reduce capital gains and generate an income tax deduction. If you are over age 70 ½, you can make a charitable donation from your IRA under favorable tax provisions. Given the new tax laws, this is the best way to give to charity if you don’t need your Required Minimum Distributions (RMD).

Maximize IRA Contributions

To save taxes for 2019, there is still time to make contributions to retirement accounts. This is a way to pay you first rather than the government. You still have until April 2020 to make contributions for this year to individual retirement accounts (IRA and Roth IRA accounts). You can check with an advisor to see if you are eligible. The maximum contribution is $6,000 and $7,000 if you are over age 50. With a traditional IRA, you get the upfront tax benefit on the contribution and with the Roth you get the benefit when withdrawn. If you get a bonus this quarter, consider taking all or some of it to maximize your 401k. Even if you don’t get a bonus, look at increasing the money you are putting into your employer’s retirement plan each year. Even increasing your contribution by 1% would help over time. It is also important you are getting the full employer match. If you are not sure, check with your HR department.

Shift to a Roth IRA 

If you lost your job or have particularly low income this year, you may want to look at converting part or all of a traditional IRA to a Roth IRA. It will create taxes now, but any earnings after the conversion will be free from taxation when taken in qualified distributions. The Roth also avoids the age 70 ½ required minimum distribution (RMD). For families or individuals with enough income outside of their retirement accounts, this can save a lot in income taxes by avoiding withdrawing funds that are not needed. 

Age 70 1/2 or Older? Take Your RMD!

If you are 70 ½, always remember to take your required minimum distributions from retirement accounts. The penalty for not doing so is one of the worst in the IRS code. The tax penalty is 50% of the required amount so a $1,000 RMD not taken in the year required would have a $500 tax penalty. As noted above, giving the RMD to a charity of your choice is the best avenue taxwise.

It is a good idea to review your situation with your accountant, financial advisor and sometimes your attorney annually or when changes occur. It also helps if they can interact amongst one another, but  you must give them permission to do so. This can help with many details, from the appropriate tax withholding for IRA distributions to naming the correct beneficiaries on accounts. 

This is an update to an article originally published on StateCollege.com in 2016.


Disclaimer: The views and opinions of the authors expressed therein do not necessarily state or reflect those of StateCollege.com.