You are currently viewing Your 2019 Year End Financial Checklist

They say hindsight is 20/20 but we think taking a moment to plan for the year end and the year ahead can give you some 2020 foresight… pun intended!  We get it, it’s holiday time and your focus is probably not on your finances, but in actuality, year-end is an important time to take stock of where you are.  Consider it in the same category as a New Year’s Resolution. Of course, if you’re a Stone Pine client we are going through this list on your behalf – maybe even right now, as you’re reading this!

  1. Take Required Minimum Distributions: If you have an inherited IRA or are 70 ½ or older you are required by the IRS to take RMDs from certain retirement accounts by year’s end.  If it’s your first year taking RMDs you have until April 1st of the year after which you turn 70 ½ to take the distribution, however, in most instances we recommend taking it before the end of the year, otherwise you will be taxed on two RMDs in 2020.

  2. Charitable Contributions: The end of the year is a good time to consider donating to your favorite causes.  Not only will you feel good about supporting something you believe in, but you will also feel good about lowering your 2019 tax liability.

  3. Qualified Charitable Distribution: Why does this one get it’s own category?  Well, it’s a great strategic combination of numbers 1 and 2 above. With a QCD you can send money directly to a charity from your retirement account, you do not pay taxes on the distribution, and the full amount still counts towards your RMD.

  4. Throw a little extra into your Retirement Account: You only have a few paychecks left before the end of the year, if you haven’t maxed out your work retirement account, consider contacting your human resources department about contributing a little extra.  The maximum contribution for 2019 is $19,000 and if you’re age 50 or over you can also make a catch up contribution of $6,000. (By the way, on November 6 the IRS updated contribution limits for 2020 to $19,500 and $6,500 for catch up).

  5. Tax Loss Harvesting: While no one likes to see a loss in their portfolio, one positive that can come out of a particular stock or fund being down for the year is you can sell and claim a loss on your taxes.  You can deduct up to $3,000 of losses each year, with any additional loss carrying forward to the following year. Taking a few minutes to do this can lessen your April tax bill by hundreds of dollars!  Of course, you want to make sure you are reinvesting any funds you sold into a comparable stock or mutual fund to keep your portfolio properly diversified.

  6. Roth Conversions:  Conversions from a pre-tax retirement account to a Roth IRA need to be completed prior to the end of the year to be counted on your 2019 taxes.  You pay ordinary income tax on the amount of money you transfer from a pre-tax account to your Roth, and this can be advantageous for those that find themselves in a low income (low tax year).  This is often the case for retirees in their 60’s, who no longer have earned income from working and have not yet reached the age of Required Distributions.

  7. Use your Flexible Spending Account funds: Most FSA accounts have a year end use it or lose it policy.  We don’t want to see you leave money on the table! On the other hand, if you have a Health Savings Account don’t panic, your HSA money carries over from year to year.

  8. 529 College Savings Contributions: If you have children or grandchildren, saving to help with higher education is likely on your to do list.  Contributing to a 529 plan not only benefits your loved one on their educational journey, but if you do so before the end of the year you can take a deduction on your 2019 Pennsylvania taxes.  (While you can open a 529 account no matter what state you live in, be sure to check the rules with deductions, unfortunately not all states are created equal when it comes to taxes).

  9. Give Gifts:  It is that time of year after all!  Each year the IRS allows you to gift up to $15,000 to as many individuals as you like without having to file a gift tax return (that’s up to $30,000 if you’re gifting with your spouse).  This can be an excellent estate planning strategy as it reduces the value of your estate and potential estate taxes that could be assessed. Contributing to a 529 education savings account is a great example of how to take advantage of gifting.

  10.   Calculate your Savings or Distribution Rate:  Okay, we’ve saved the best for last.  Here at Stone Pine, this is our favorite part, because it’s one of the most important percentages in financial planning.  For Pre-Retiree’s:  your savings rate, and for Retirees: your distribution rate.

    To calculate your savings rate you need to add up how much you have saved throughout the year in various areas, i,e. your retirement plan at work (including matching dollars you receive), money you contribute to an IRA, an investment account, a savings account etc.  And if you want to get technical, you should also include the principal portion of loan payments. Simply total up all of your savings and divide into your total income to come up with your savings rate. If you saved $20,000 and your income is $100,000 then you have a savings rate of 20%.  CHALLENGE: once you know you’re rate take a look at your budget and try to find ways to increase it for 2020.

    For Retirees the important calculation is your distribution rate.  Here you want to total up all distributions/income you took from your assets and savings, i.e.  voluntary or required distributions from retirement accounts, withdrawals from savings or investment accounts etc.  You then take this total distribution figure and divide it into your total amount of assets/savings. If you distributed $40,000 and your assets (not including your home, cars, etc.) are $1,000,000, then you had a 4% withdrawal rate.