It’s that time! – 2019 End-of-Year Financial Planning

December 6, 2019 Greg Caramanica

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There are multiple opportunities at the end of the year to make sure you close out 2019 right. Since most year-end planning opportunities have firm deadlines—often December 31st—acting now can help ensure you don’t leave money on the table. It’s not all upside though: Failing to take certain actions can mean penalties in some cases.

401k Contributions – The maximum you can put into your company’s 401k plan for 2019 is $19,000 and it has to be before the end of the year.  So, December is your last chance to contribute if you haven’t reached your maximum.  Check your last paystub to see what your contributions year-to-date have been.  Also take a look at your contributions per paycheck.  Add the remaining contributions to the year-to-date amount and that will be your expected annual contribution.  If it’s less than $19,000 and you want to make additional contributions, log into your company’s 401k website and add a contribution.  If you need help, contact your company’s Human Resources department.

529 Contributions – If you have a Virginia 529 College Savings Plan, you can deduct up to $4,000 per year in contributions against your Virginia State taxes.  So, if you have contributed less than $4,000 this year and would like to get the full tax benefit, you will need to make your contribution before the end of the year.

In addition to contributions, there is also an end-of-year note about distributions.  If you are taking distributions from a 529 plan to pay for qualified educational expenses, be careful not to draw from the account in December for January expenses.  You must wait until January to make those distributions, or else they will be considered nonqualified distributions and subject to taxes and fees.

Required Minimum Distributions – If you are over 70.5 years old, you are required to take a certain amount of money out of your tax-sheltered retirement accounts each year.  These are called Required Minimum Distributions (RMDs).  If you don’t take out enough, you will be subject to penalties.  So, before the end of the year, you should check your retirement accounts to see if your RMDs have been distributed.  If necessary, contact your financial planner, broker, or bank to discuss the calculation.  If you haven’t taken the full amount, arrange for it to be withdrawn before the end of the year.  It can go into your bank account, into another (non-retirement) investment account, or wherever you want it to go – it just has to be withdrawn from the retirement account (e.g. you don’t have to spend it!).

Medical Expenses – If you have a deductible and a maximum out-of-pocket limit on your health care insurance, then you may save money by going to the doctor in December instead of waiting until the -new year.  If you have met your maximum out-of-pocket limit, then you will pay less for those necessary medical appointments in December.  If you wait until January, the limit resets and you start over again.  So, review your deductible situation and determine whether you should take the chance to move any necessary medical appointments.

Also, consider your total medical expenses in 2019.  Did you have a major illness in 2019?  Did you pay for braces for multiple children in 2019? If your medical expenses in 2019 were over 10% of your adjusted gross income, then you qualify for medical expense deductions on your 2019 tax return.  This could be another reason to arrange for necessary medical appointments or expenses to occur in December rather than waiting until the new year.

Flexible Spending Accounts – There are two types of flexible spending accounts (FSAs) your employer can sponsor: Medical and Dependent Care. Unlike Health Savings Accounts (HSAs), which don’t expire at the end of the year, FSAs are considered “use or lose,” except for small amounts (e.g. $500, depending on the plan) that may be allowed to roll over to the next year for medical FSA.  This means that in most cases your 2019 FSA can ONLY be used for qualified expenses that happened in 2019.  If your qualified expenses in 2019 haven’t added up to your full FSA contribution, you may want to expedite any qualified expenses that can be expended in 2019.  With FSAs being funded by deductions from your paycheck every month, if you don’t spend it all then it’ll be like throwing your money away.  Check your medical plan for details on rollover allowances.

Tax Withholdings – Yes, the IRS tables are inaccurate again this year for most.  This means that the withholdings from your paychecks (that are sent to the IRS every month to prepay your 2019 federal taxes) might not be enough.  Take the time to review your most recent paystub.  Look at the amount withheld to-date and the amount withheld per paycheck.  Based on these amounts, calculate how much you will have withheld by the end of the year (last paychecks before January 15 count).  To avoid an underpayment penalty, individuals must pay either 100% of last year’s tax or 90% of this year’s tax, by combining estimated and withholding taxes (with a few exceptions).  If you haven’t withheld enough, you can either send a check directly to the IRS or you can arrange for a higher amount to be withheld from your December paycheck(s).

Charitable Giving – Charitable donations of money or goods are deductible on your taxes for the tax year they are incurred.  So, if you want to get the deduction on your 2019 taxes, you must make the donation before the end of the year.  Remember to document what you have donated and the fair market value of the donation, then get a receipt from the qualified charitable organization.  There are rules that could limit your deduction to 50% of your adjusted gross income (AGI) for certain donations or 30% of AGI for other donations, as well as rules about gifts of long-term capital gain property. If you are unsure of whether your donation will qualify and how much of a deduction you can get, speak to your tax advisor.

The end of the year can be hectic, but if you consider these financial planning opportunities and make your moves before the end of the year, you will thank yourself come tax time.


Greg Caramanica, CERTIFIED FINANCIAL PLANNER™
Investment Advisor Representative, COO, and Founder of Arlington Wealth Planning, LLC
Greg@ArlingtonWealthPlanning.com
(703) 300-0448

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