Get Set New Year

10 Ways to Get Set for a Financially Fit Year

Jay Gershman |

10 Ways to Get Set for a Financially Fit Year

Jay L. Gershman, Retirement Visions LLC, West Hartford

It always amazes me how many people contact us to start a long overdue planning process at this time of the year. I suppose it’s human nature to procrastinate and the end of the year is certainly a powerful motivator to accomplish any outstanding goals. With that in mind, here are my top 10 tips to tackle before December 31st so you can set yourself up for a smart 2019 and begin the new year ahead of the game.

  1. Use tax software to project your taxes prior to the year-end. Some people will be pleasantly surprised while others might use the opportunity to pay in the amount owed prior to December 31st. If you owe, this is your chance to make changes and adjustments for 2019.
  2. If you’re having a bad financial year, consider converting IRAs to ROTH IRAs at little or no cost to you. Since the market is down a bit right now, you will get a discount for the lower value of the converted account.
  3. Compare your itemized deductions to the new standard deduction. If you are close to the new standard deduction, donations to charity will likely reduce your taxes owed. If you’re over 70 ½, make donations from your IRAs.
  4. Max out your Health Savings Account at $3,450 for a single and $6,850 for a family. Contributions are tax deductible but funds used for medical expenses are not taxed. Most advisors will recommend funding HSAs before any 401(k) deferrals after the company match. If you’re over 50, you can add an additional $1000.
  5. Review your taxable investments to harvest any tax losses or prevent large capital gains from mutual funds prior to being paid out.
  6. Consider the benefit of deferring more of your salary into your 401(k), 457, 403(b) or IRA. If your taxable income falls into the new 12% rate, you may want to use a ROTH IRA. Otherwise increasing your deferral will save your 22% on federal and 6+% on Connecticut taxes.
  7. Determine if you will be eligible to make ROTH IRA contributions based on your modified adjusted gross income. The phase-out starts at $120,000 for single filers and $189,000 for joint filers. If you have cash in the bank and can qualify for the forever tax-free ROTH IRA account, you’re crazy not to take advantage of it.
  8. If you love ROTH IRAs but aren’t eligible to contribute, you might have an opportunity if you employ the back door ROTH IRA conversion strategy.  This one is complicated but the IRS reviewed it and ruled in favor of it this year. Ask your advisor for details.
  9. If you have appreciated assets that will result in high capital gains taxes if sold, consider gifting them to children over 19, as they will likely qualify for capital gains rates as low a 0%. Donating these assets to charity would also avoid the tax and still qualify as a deduction.
  10. Last but not least, my new favorite. Talk to your tax preparer about not claiming your college-age children on your tax return. Instead, gift them the funds to pay for their own college expenses. This strategy would allow them to become eligible for two education tax credits that you may not be eligible for based on your income. We’re talking about as much as $4500 in benefit, so it’s an option well worth considering.

 

Jay Gershman is the Owner and Founder of Retirement Visions LLC, a West Hartford-based financial planning firm that focuses on comprehensive life planning and financial management. For more information, visit www.allset2retire.com. Information and advice are for guidance only and opinions expressed belong solely to the author.

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