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Year End Financial Planning Advice

The holiday season is upon us.  It’s time to relax and spend time with the people we love.  But, before you get too cozy there are several financial planning items to review before the end of the year.  You don’t want to pay more to Uncle Sam than what is necessary or leave money on the table, do you?  We didn’t think so, so let’s get started. 

Maximize retirement plan contributions

Most employers offer 401(k) or 403(b) retirement plans as a benefit.  The maximum contribution for these plans in 2019 is $19,000.  If you are age 50 or older then you are eligible to save an additional $6,000 for a total employee contribution of $25,000.  Your employer retirement plan will offer pre-tax or deductible contributions and may even allow for after-tax or Roth contributions.  If you are contributing on a pre-tax basis you should consider maximizing your contributions prior to year end in order to minimize your overall tax liability.  As a rule of thumb, your minimum contribution should match what your employer is contributing to the plan.  For example, your employer contributes 3% of your annual salary to your plan which means your minimum contribution should be 3% as well.  If you are concerned with crossing a tax bracket threshold, then you should consider reducing your tax liability by funding your pre-tax retirement plan.

Roth IRA conversion

The income threshold for contributing to a Roth IRA in 2019 is based on your tax filing status.  For example, if you are married filing jointly and make over $203,000 in 2019 then you are not allowed to contribute directly to a Roth IRA.  However, it is still possible to move money into a Roth IRA.  You are allowed to make a nondeductible contribution of $6,000 or $7,000 if age 50 or older to a Traditional IRA.  The funds are eligible to transfer to a Roth IRA as a taxable event.  Yes, this increases your potential tax liability.  What it also does is allows for tax-free growth and no required distribution in retirement which individuals 70 ½ or older must take from Traditional IRAs and pay tax on the distribution.  You are able to complete a full or partial Roth IRA conversion based on any amount in your Traditional IRA.  Tax rates are historically low for the time being, so it may make sense for you to convert all or some of your Traditional IRA assets to a Roth IRA.

Tax loss harvesting

It may be difficult to find any investment losses this year, but it is worth reviewing with your financial professional.  No one enjoys paying the government more in taxes than what is required.  If your net taxable losses exceed your gains then you are eligible to write off $3,000 in realized losses.  Not only does this apply for the current tax year, the losses are also eligible to be carried forward and used to offset future capital gains.  Remember to review previous year losses to see if they can be used in 2019 if you are expecting to realize gains by year end.

Charitable contributions

If you itemize your deductions, then charitable giving will likely reduce your overall tax liability.  Let’s be clear, the idea of minimizing your tax liability by giving to charity is an added benefit, it is not the sole reason you should be making a charitable donation.  With that said, here are a few charitable strategies:

Highly appreciated stock

The most common way of giving to charity is by cash or check.  However, it is beneficial to donate highly appreciated securities such as stocks.  When one gifts a highly appreciated stock, then the fair market value of the gift is claimed as an itemized deduction, up to 30% of the donor’s adjusted gross income.  The donor does not have to pay capital gains when the stock is donated, therefore reducing a large potential tax liability.  

Donor advised fund

A donor advised fund is held at a public charity and allows individuals and families to make a charitable contribution, receive a tax deduction, and recommend grants.  Donors make an irrevocable gift of assets such as cash, stocks or real estate to a donor advised fund. The assets are then invested and grow tax free until you recommend a grant to a qualified charity of your choosing.

Contribute to a 529 account

A 529 is a tax advantaged savings plan designed to encourage savings for higher education.  A 529 account provides the beneficiary with tax free money to be used on higher education.  Making a contribution by December 31 allows for a likely state tax deduction.  The rules to each 529 plan varies depending on your state.  Check out www.savingforcollege.com to learn more.

Maximize Health Savings Account (HSA) contributions

The annual limit for HSA contributions in 2019 is $3,500 for individual coverage and $7,000 for family coverage.  HSA contributions are considered tax deductible, so if you are closing in on the next tax bracket you should maximize your contribution and reduce your overall tax liability.  These contributions can be invested and grow tax free and also be used to pay for qualified medical expenses.

Use your remaining Flexible Spending Account (FSA) funds

The money you contribute to an FSA are taken from your paycheck on a pretax basis.  The 2019 annual limit for contributions is $2,700.  The FSA is different than the HSA because it is a use it or lose it benefit.  Any remaining funds that are not used will not be retained, unless your specific plan allows for a $500 rollover into the following year or a grace period of 2 ½ months.  Need to spend money on eligible items? Check out the FSA Store.

The holiday season is the best time of the year.  We hope this information makes it even better by saving you money and reducing your potential tax liability.  If you’d like further education or would like to meet to discuss your personal situation, then please set up a complimentary consultation today.

- Dan

The financial planning items discussed are catered towards younger families.  We did not mention taking required minimum distributions (RMDs) from Traditional IRA accounts after reaching age 70 ½ or using your RMD for charitable donations, which is an option.  If you are interested in discussing these items we would enjoy the opportunity to learn about your unique situation!

Disclaimer:  This article is for informational purposes only and is not a recommendation of Fyooz Financial Planning, Natalie Slagle CFP®, or Daniel Slagle CFP®. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. Therefore, it should not be assumed that future performance of any specific security, investment product or investment strategy referenced in the article, either directly or indirectly, will be profitable or equal to the corresponding indicated performance level(s). No portion of the article shall be construed as a solicitation to buy or sell any specific security or investment product or to engage in any particular investment or financial planning strategy. Any reference to a market index is included for illustrative purposes only, as it is not possible to directly invest in an index. Indices are unmanaged, hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs generally associated with investable products, which otherwise have the effect of reducing the performance of an actual investment portfolio.


Dan Slagle
Founder, Fyooz Financial
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