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I'm Stephanie Sammons, a CERTIFIED FINANCIAL PLANNER™ and the Founder of Sammons Wealth Management. I help successful women professionals who are in midlife plan for their ideal retirement. Learn more about planning, saving, and investing for your ideal retirement at Sammons Wealth Management.

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The end of the year is a good time to get your financial house in order. There are some specific year-end financial moves that can help you improve your financial position. Below are 5 year-end financial moves to consider:

#1) Know Your Income Reduction Opportunities

The Tax Cuts and Jobs Act of 2018 raised the standard deduction for single, married, and head of household filers. Many itemized deductions were also eliminated.

The result of these changes is that most people will take the standard deduction on their tax return this year. However, you may be able to itemize if you have enough qualifying tax deductions.

Here is what can be itemized on your 2019 tax return: Mortgage interest (on loan balances up to $750k unless you have a previous loan up to $1M that was grandfathered), SALT (state and local taxes – including property taxes) capped at $10k, charitable donations (up to 60% of AGI for cash donations), and medical expenses that exceed 10% of AGI.

In order to itemize on your tax return, you will need to have deductions that exceed the standard deduction. One way to take advantage of these income “reduction” opportunities is to “bunch” them together in alternating tax years. Meaning, maybe this year you itemize and the following year you take the standard deduction. Rinse and repeat in alternating years.

Charitable contributions may be your best path for exceeding the standard deduction. If you are charitably inclined, you can potentially utilize a donor advised fund for your charitable contributions. This strategy allows you to make a lump sum charitable contribution into the fund and take that full deduction upfront (front-load the fund), but actually dole the money out to your chosen charities over multiple years.

#2) Maximize Your Retirement Plan Contributions

One of the best ways to reduce your taxable income for the year is by maximizing retirement plan contributions. If you are employed and working for a company that offers a 401k, see where you are on contributions for the year. Have you maxed out your plan? Or if you anticipate receiving a year end bonus, you may be able to contribute a portion of the bonus into your 401k.

Contributing to a traditional IRA is another retirement option if you have earned income but are not covered by a 401k plan. If you are covered there are limitations to what you can contribute.

If you are self-employed, consider establishing your own small business retirement plan. Depending on the size of your business, a SEP (Simplified Employee Pension) or a Solo 401k Plan are good options.

With a Solo 401k plan, you may be able to contribute more than a SEP. However, it can only be you, or you and your spouse working in the business with no other employees. if it’s just you as the owner and operator of your business.

There are additional deduction opportunities for self-employed small business owners that come into play with the Tax Cuts and Jobs Act of 2018, including the Qualified Business Income deduction. There are various rules that pertain to eligibility for this deduction so it’s something to review closely with your advisor or CPA.

Finally in this category, if you were enrolled in a high deductible health insurance plan (HDHP) for 2019, you may be eligible for a Health Savings Account (HSA). HSAs are like a “super IRA” with a triple tax benefit. Your contributions are tax deductible, the funds grow tax free, and if you pull money out for qualified health care expenses, you won’t owe any taxes.

#3) Review Tax Loss Harvesting Opportunities in Your Portfolio

Tax loss harvesting is a strategy where you harvest losses in your taxable portfolio to offset an equivalent amount of capital gains. If your portfolio losses exceed your gains, you can offset up to $3,000 against your ordinary income.

I find that many financial advisors and money managers don’t monitor this opportunity closely enough in their clients’ portfolios. It’s something that should be reviewed on an ongoing basis! Tax-loss harvesting may also allow you to reposition your portfolio at year end.

#4) Remember to Take Your RMDs (Required Minimum Distributions)

RMDs normally apply if you have reached age 70 1/2 and you have money inside of IRAs and/or 401ks. The IRS requires you to pull a certain amount out each year according to its life expectancy tables and pay taxes on the distribution. You also may be subject to RMDs if you have inherited or beneficiary IRA.

RMDs for the year must be taken by December 31st (unless it’s your very first year turning 70 1/2 you have until April of the following year). Unless it’s your very first year for taking an RMD. If you forget to take your distribution, there is a 50% penalty on the amount you should have taken out!

It’s surprising how many people forget to take their RMDs, but understandable as you age that you may not always remember. Again, your financial advisor should be on top of this.

If you are charitably inclined and can afford to do so, you can donate your RMD directly to a qualified charity. This would allow you to avoid paying income taxes on the distribution!

#5) Evaluate Your Insurance Coverages

End of year is typically when you are deciding on health insurance coverage for next year. Review health insurance options closely and consider your cashflow, current health, and any anticipated medical expenses for the following year.

If you are in good health and typically don’t spend significantly on health care, it might make sense to consider that high deductible plan that would make you eligible for a Health Savings Account (HSA).

With a high deductible health insurance plan your premiums are usually lower but you will have a higher deductible. The goal with the HSA is to let your contributions accumulate and pay for any health care expenses out of pocket, if you can afford to.

End of year is also an important time to review other insurance coverages, such as homeowners insurance. The tornado that tore through the Dallas area recently was less than a mile from my house. The devastation is unbelievable. I have multiple friends who were affected by the tornado, and they have been shocked to learn what was not covered by their homeowners policies.

If you have personal property items of value in your home and you do not have those items specifically scheduled on your homeowners policy, then most likely they will not be covered. Make sure you have items like jewelry, art, rugs, and other items of value scheduled.

As a singer-songwriter, I have a couple of collectible guitars that are very valuable. You better believe that these are scheduled on my homeowners policy!

You just can’t ever predict when disaster it might strike and we are certainly seeing more frequent natural disasters due to global warming.

Last but not least, do you have long-term disability coverage in place for income protection? This a coverage that I consider to be pretty important as loss of income can devastate an individual or couple financially. Midlife is also an important time to consider long-term care insurance. The younger and healthier you are, the more affordable these coverages will be.

I hope that these 5 year-end financial moves can help you more successfully position for the coming year.

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(00:02): Welcome to the LGBTQ midlife money podcast. I'm Stephanie Sammons and experienced certified financial planner and my goal is to help you take charge of your money and live your best midlife. Welcome to episode 31 of the LGBTQ midlife money podcast. We're coming upon the end of the year now and I thought it would be a good time to talk about

(00:33): about some year end financial moves that you may be able to benefit from if you plan ahead and start thinking about this stuff. Now I want to go through five savvy year end financial moves that can benefit your financial life on this episode. Some financial housekeeping, if you will, to take care of by the year end that can improve your financial position, including potentially reducing your 2019 tax bill. Number one, income reduction opportunities. So the tax cuts and jobs act of 2018 changed the tax law pretty significantly and we lost a good number of deductions that could be itemized on our tax returns. The result of that change is most of you will now take the new higher standard deduction on your tax return. In other words, it may make more sense to just take the standard deduction versus trying to itemize because we lost a bunch of those itemized deductions that we once had the ability to take advantage of.

(02:01): For single filers, the standard deduction is now 12,200 for 2019 for married filing jointly, it's $24,400 and if you're head of household, it's $18,350 and those levels were increased with the new cat tax cuts and jobs act. So what still is eligible for the ducting on your tax return if you do wish to itemize or if you're even able to itemize. The first thing is mortgage interest on loan balances of $750,000 or less. It's possible that you had a bigger mortgage loan than this and that loan balance up to a million dollars is grandfathered and you're still able to take that interest deduction. But anything, any home loan that you have put in place since the beginning of this new tax act in 2018 is kept at the $750,000 loan balance. So you can still take a mortgage interest deduction, but that is the limitation. Another itemized deduction is your state and local taxes such as property taxes.

(03:37): Those work capped at $10,000 regardless if you are a single filer or you are a married filing jointly, so you need to add these things up. For example, if you're married and you file a joint tax return with your spouse and that deduction standard deduction is 24,400 you need to add up your mortgage interest, your state and local tax amount and a couple other things here that I'm going to mention and see if those itemized deductions actually exceed what the standard deduction is and that's how you determine whether or not it makes sense for you to itemize on your tax return. Another thing you can itemize is if you have health care and medical expenses that are in excess of 10% of your adjusted gross income. Now this was seven and a half percent. That was the prior threshold that has now gone up to 10% it's pretty tough to get there unless you've had some kind of major medical issue in 2019 and you had to come out of pocket to the tune of more than 10% of your adjusted gross income.

(04:58): It's possible but probably not too common. And then the last thing that you're able to itemize is charitable contributions up to 60% of your adjusted gross income. That is for a cash charitable contribution. One thing you can do is if you add these things up and you don't even come near to exceeding what the standard deduction levels are today, you could consider bunching these itemized deductions together in alternate years. So you could itemize in one year, potentially be bunched these things together and then the next year take the standard deduction. So that takes some, some thinking and some planning ahead of time to be able to pull that off. But that is one strategy that is becoming more common. Also with charitable contributions, you can utilize something called a donor advised fund and essentially what that allows you to do is put more money into the fund up front and take that full deduction up front, but actually Dole the money out to your chosen charities over time.

(06:26): So potentially you could do a couple of years worth or even five years worth of charitable donations that you'd know you're going to do anyway. Put that money into a donor advised fund and get the deduction this year and dull that money out over time to the various charities. So number one was income reduction opportunities. Those are the main ones that I have mentioned. Number two, and perhaps the biggest ride off of all is max out your retirement plan contributions. It's a good time right now to look and see where you stand in terms of maximizing your 401k contributions. If you are employed and working for a company that offers a 401k, see where you are and can you potentially put more money into that plan? Or if you receive a year end bonus, maybe you can put a portion of your bonus into your 401k in order to maximize that contribution for 2019 also, IRAs, you may be able to make a deductible IRA contribution.

(07:49): There are limits based on your income and whether or not you are contributing to other retirement plans. So you need to check those rules or check with your financial advisor or CPA and also deferred compensation plans. If you are in management, upper level management or an executive, you may be eligible to defer compensation now and reduce your taxable income for the year and have those funds and that income pay out later in retirement. And it's just really important that you structure the payout on your deferred compensation. So you want to take a really close look at that and make sure you're not structuring your deferred comp to come out all in the same year in retirement. You want to kind of spread that income out over time.

(08:47): Another thing, if you're self employed, consider establishing your own small business retirement plan. There are plans out there. There's a set plan, the simplified employee pension. There's a solo 401k plan if it's just you as the owner and operator of your business. And also you can have a spouse working in your business for a solo 401k plan. But these small business retirement plans allow you to put away a nice chunk of change and reduce your taxable income. If you are self employed, there are additional deduction opportunities for self employed small business owners that came into play with this new tax cuts and jobs act. Uh, there's something called a qualified business income deduction, but you need to review these things with a CPA or your financial advisor to determine your own eligibility for these kinds of opportunities. And then finally in maxing out your retirement plan contributions.

(09:57): If you were enrolled in a high deductible health insurance plan for 2019, you may be eligible for a health savings account, which is kind of like a super IRA for health care savings. If you go back and listen to episode 30 of the podcast, I talk all about HSA [inaudible] or health savings accounts and their amazing benefits. So you can go back and listen and determine if it makes sense for you. All right. Number three, tax loss harvesting in your portfolio. This strategy involves pruning, losing holdings from your portfolio, which can be used to offset an equivalent amount of capital gains or if your a portfolio losses exceed your gains, you can offset up to $3,000 against your ordinary income. Well, the markets have done pretty well this year as they have over the last decade and you may be pretty hard pressed to find losses in your taxable portfolio that she can even take advantage of. However, it's very possible that your financial advisor or your money manager may not have been on top of this in prior years and you may have some embedded losses in your portfolio, in your accounts that exist that you could harvest and also take some gains and offset those capital gains with those losses. It might be a good way to reposition your portfolio at year end,

(11:45): huh?

(11:46): And just be able to realize some gains and take, take some gains off of the table, believe it or not, with a number of my clients. Um, I see this a lot where there are positions in their accounts that have just been sitting there and sitting there and not managed and not monitored where this tax loss harvesting strategy can really be beneficial. So make sure whoever you're working with is on top of that and paying attention to those opportunities for you. All right, so number three was tax loss harvesting in your portfolio. Number four, savvy year end financial move is required minimum distributions, otherwise known as RMD. Now these distributions apply to you if you are age 70 and a half or older and you have IRAs and 401ks, you are required to pull a certain amount of money out of those accounts each year by the IRS and pay taxes on those dollars.

(13:01): You also may be subject to required minimum distributions. If you have inherited an IRA and you have a what's called a beneficiary IRA, it's very important that you take an RMD required minimum distribution by December 31st of this year. Unless it's your very first year for taking an RMD. There is some a little bit of a of delay that you can take advantage of there, but normally by year end the last day of the year, you have to pull that distribution out. Otherwise there is a 50% penalty on the amount you should have taken. If you forget to do this, 50% as in five Oh you would not believe how many people forget to do this or their advisors forget to remind them to do this. Luckily, we have tools and reminders built into our systems to help clients remember to take their RMDs, but really, really important that you are sticking to your schedule of required minimum distributions with your IRAs and your 401k accounts.

(14:23): Number five, my last savvy year-end financial move for you is review your insurance coverages. Now it's time currently for many of you to re-enroll in your health insurance plan for next year. Really review closely what options are and determine what plan makes sense based on your cashflow, your budget, your current health, your future medical needs that you know about and that are predictable. It might make sense to look at a high deductible health insurance plan or you may not have an option that may be what you have to do depending on your employment situation. But with the high deductible health insurance plan, usually your premiums are a little bit lower, you have a higher deductible, but it allows you to contribute to a health savings account which you would be able to do for next year. Uh, if you're just getting into, if you just select for 2020 to be covered by a high deductible health insurance plan, so that may be something that you want to check out.

(15:55): Also review other insurance coverages such as your homeowners insurance. The tornado that tore through Dallas recently. It was literally less than a mile from my house and I would have never believed that such a destructive tornado would ever come through a dense area and city where I live, I mean this is a very dense area. I'm in the city and many people whose homes were hit by this tornado, including friends of mine, have been shocked to learn what was not covered. In fact, if you have items of value in your home and you do not have those items, that personal property specifically scheduled on your homeowners policy, then those items probably are not going to be covered if something happens. Many of you know, I'm a singer songwriter. I have probably five, six guitars. Some of them I've had for a long time. They're valuable there and they're also very important to me.

(17:24): And I have those guitars scheduled on my homeowner's policy in case something were to ever happen. But that's the kind of thing I'm talking about. Art, jewelry, anything of value. You want to get that covered through your homeowners policy. Uh, just you can't ever predict when disaster it might strike. So review homeowners, review your auto insurance. Also review longterm disability, which is an important coverage I'll talk about in a future episode and you may want to start thinking about whether or not longterm care insurance makes sense for you. If you're in midlife, take a look at all of your insurance coverages right now. It's the end of the year and a good time to do it. So these are the five savvy year-end financial moves in mid life that I want you to think about your income reduction opportunities. Number one. Number two, I talked about maxing out your retirement plan contributions. Number three, tax loss harvesting in your portfolio. Number four, take care of your required minimum distributions. And number five, review your insurance coverages. So that's your homework between now and the end of the year to get

(18:53): rolling on these year end financial moves. You've been listening to the LGBTQ midlife money podcast. To learn more and to sign up for our email list, visit LGBTQ, midlife life, money.com this show is for informational and educational purposes. Please do not consider any of the content as personalized financial investment tax or legal advice.

(20:07): [inaudible].

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