Tag Archive for: QCD

financial plan

Getting Ready for 2019

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Getting Your Financial Plan Ready for 2019

Last month I wrote about how the Tax Cuts and Jobs Act could affect your year-end planning. Now I’d like to look at year-end planning from a broader perspective. This list should help you get your financial plan ready for the new year:

 

  • It All Starts With Saving…

    Whether you use Mint, a spending tool from your financial advisor, or a year-end report from your bank or credit card issuer, it’s important to track your spending habits. Having a handle on how you spent your money in 2018 will give you an idea of how you can save more in 2019. Sticking to a budget isn’t easy, so start by analyzing reoccurring expenses to find opportunities to save more. It could be cutting the cord (I switched to DirectTV Now this year!), switching to a family cell phone plan or reaching out to your insurance agent to review your policies.

 

  • Instead of Resolutions, Have a Plan…

    This is a good time to look at where you were last year at this time and see if you stuck with your financial plan. If anything has changed in 2018 that affects your long-term goals, this is the time to address them in your plan.

 

  • Make Sure You Have a Liquidity Plan…

    The rule of thumb is to make sure you keep three to six months of expenses in cash to act as an emergency fund. This may be too broad of an approach as everyone’s situation is different. If you take a lot of risk in your career you may want to hold more cash. A larger cash reserve could also apply to retirees that rely on their investments for most of their income.

 

  • Last Chance To Max Out Retirement Plan Contributions…

    The maximum 401(k) employee elective salary deferral for 2018 is $18,500. If you are age 50 or older, you can put in an additional $6,000 as a catch-up contribution. If you are a participant in a SIMPLE IRA plan, the maximum salary deferral is $12,500 and a $3,000 catch-up contribution can be made. The deadline for these contributions is December 31st. If you can put away more for 2018, contact your human resources department to see if more can be taken out of your last paycheck.

 

  • Make sure you take required minimum distributions (RMDs) from your retirement accounts…

    According to the IRS, you must take your first required minimum distribution (RMD) for the year in which you turn age 70½ by April 1st of the following year. After that first year, the distributions must be made by December 31st. Remember, required minimum distributions also apply to inherited IRAs. You must start taking distributions by December 31st in the year following the death of the original owner.

 

  • Is a Roth Conversion Right For You…

    Any money that you convert to a Roth IRA is generally subject to income taxation in the year that you do it. But over the long term, the money will continue to grow tax-free. It also won’t be subject to required minimum distributions (RMD) in retirement. Traditional IRA account owners should consider the tax ramifications, age and income restrictions about executing a conversion from a Traditional IRA to a Roth IRA. Roth conversions must be done by December 31st. If you made any non-deductible contributions to a retirement plan or IRA in 2018, you may be able to convert those to a Roth without any additional tax consequences.

 

  • Review Your Investments and Harvest Tax Losses… 

    2018 has been a volatile year with many asset classes down year to date. You may be able to harvest some losses in your non-retirement investment accounts by offsetting them with realized gains. You can also realize up to $3,000 as a capital loss against your taxable income.

 

  • Making the deadline for a charitable gift… 

    Most charitable gifts must be postmarked or received by December 31st to qualify for a deduction. If you are retired and taking distributions from a retirement account, part of your RMD can be met by making a Qualified Charitable Distribution (QCD). A QCD doesn’t give you a charitable deduction, but it counts against satisfying your required minimum distribution for the year. Therefore, it is excluded from your taxable income. Like your RMD, the deadline for this distribution is December 31st.

 

  • Deducting 529 contributions… 

    Prior to investing in a 529 plan, investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing. If you are in a home state’s plan that offers an income tax deduction on contributions, make sure you get your contribution in by December 31st.

 

  • Is Your Estate Plan Up to Date?… 

    Has anything changed in 2018 that would be a reason to make modifications to your will, health care proxy, or power of attorney? This is also a good time to make sure you have the desired beneficiary(s) on all of your retirement accounts and insurance policies.

 

  • Making the Most of Spending Accounts…

    For 2018, if you are in a high-deductible health-insurance plan, you can fund a health savings account (HSA). Individuals can put away as much as $3,450 before taxes, while families, can put away $6,900. Those age 55 and older can contribute an additional $1,000. You have until April 15th to fund an HSA. If you funded a flexible spending account (FSA) through your employer in 2018, you may have to spend down your balance by the end of the year. Unlike an HSA, FSAs typically don’t allow you to carry over much of a balance into the following year.

 

  • Should You Bunch Medical Expenses by Year End?… 

    For 2018, the adjusted gross income (AGI) floor was lowered to 7.5% and will return to 10% in 2019. Any medical expenses above 7.5% of your AGI can be itemized for deductions. To claim the deduction, you must have itemized deductions that exceed your standard deduction (which is now $24,000 for a married couple). You may consider covering some medical expenses before the end of the year that you were going to hold off on, if it will raise your itemized deductions above your standard deduction. Also, 2019 will be a more difficult year to claim the deduction since the AGI floor returns to 10%.

 

As always is the case, these suggestions are only intended to be used as general information and are not intended to be tax advice. You should always consult a tax professional before making tax planning decisions and work with a trusted financial advisor to help you make the most of 2019.

 

All the best in the New Year.

 

Securities offered through LPL Financial, Member of FINRA/SIPC and investment advice offered through Stratos Wealth Partners Ltd., a Registered Investment Advisor. Stratos Wealth Partners, Ltd. and Lob Planning Group are separate entities from LPL Financial.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

 

Stratos Wealth Partners, Lob Planning Group and LPL Financial do not provide legal and/or tax advice or services. Please consult your legal and/or tax advisor regarding your specific situation.

 

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Year End Tax Planning: TCJA Edition

Year End Tax Planning: TCJA Edition

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Year End Tax Planning: TCJA Edition

With the passage of the Tax Cuts and Jobs Act (TCJA) last December, year-end tax planning could impact even more individuals. A lot has already been written about how it has limited two key itemized deductions: mortgage interest and state and local taxes (SALT). There are also many potential benefits. The TCJA expands the standard deduction and availability of the child tax credit, made reforms to itemized deductions and the alternative minimum tax, and lowers marginal tax rates. Given these changes, here are some things to consider going into the end of the year:

 

  • Is Tax Deferral Still the Way to Go?- Some individual taxpayers will see their effective tax rate go down in 2018. If you are one of those people, you may want to rethink making tax-deferred contributions to your retirement savings. If you are already in a low tax bracket, you may see more of a long-term benefit by contributing after tax money. In addition to a Roth IRA, some employer retirement plans allow for Roth contributions. Withdrawals from the account may be tax free, as long as they are considered qualified. There are some limitations and restrictions. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. It should also be noted that future tax laws can change at any time and may impact the tax benefits of Roth IRAs.

 

  • Should You Convert Tax-Deferred to Roth?- In addition to making new retirement contributions with after tax money, you may benefit from converting money you have in a tax-deferred retirement account to a Roth IRA. Keep in mind, that any money that you convert to a Roth IRA is generally subject to income taxation in the year that you do it. But over the long term, the money will continue to grow tax-free and won’t be subject to required minimum distributions (RMD) in retirement. Roth conversions must be done by December 31st. Traditional IRA account owners should consider the tax ramifications, age and income restrictions in regard to executing a conversion from a Traditional IRA to a Roth IRA. 

 

  • Should You Take Out More Than Your RMD?- For some retirees with a low income or high medical deductions (threshold decreased from 10% of AGI to 7.5% for 2018), it may actually make sense to take more out of retirement accounts than the required minimum distribution. Even if you don’t need the money to cover expenses, the amount taken above the RMD can be converted to a Roth.

 

  • Bunching Up Your Deductions- With the combination of the standard deduction being doubled and big-ticket deductions, like mortgage interest and SALT, being limited, it is more difficult to meet the threshold for itemizing deductions. With careful planning, you may be able to bunch up deductions like charitable contributions, medical expenses, and unreimbursed employee expenses in one calendar year to get you over the threshold. For example, if you normally make $5,000 in charitable contributions in a calendar year, consider contributing $10,000 to a charity or donor advised fund, and nothing the following year. The donor advised fund will allow you to take the deduction in the year the contribution is made, but offers discretion to give money out over time to the charities of your choosing. While donor advised funds have many advantages, some disadvantages to be aware of include but are not limited to possible account minimums, strict limits on grant allocations, management fees and the potential that future tax laws may change at any time that may impact the tax treatment and benefits of donor advised funds

 

  • Consider a QCD- If you are already age 70 ½, and making charitable contributions, you may consider a Qualified Charitable Distribution (QCD). A QCD doesn’t give you a charitable deduction but it counts against satisfying your required minimum distribution for the year. Therefore, it is excluded from your taxable income. Like your RMD, the deadline for this distribution is December 31st.

 

Keep in mind that these suggestions are only intended to be used as general information and are not intended to be tax advice. You should always consult a tax professional before making tax planning decisions and work with a trusted financial advisor to see how the recent tax laws can affect your investment plan.

 

 

Securities offered through LPL Financial, Member of FINRA/SIPC and investment advice offered through Stratos Wealth Partners Ltd., a Registered Investment Advisor. Stratos Wealth Partners, Ltd. and Lob Planning Group are separate entities from LPL Financial.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Stratos Wealth Partners, Lob Planning Group and LPL Financial do not provide legal and/or tax advice or services. Please consult your legal and/or tax advisor regarding your specific situation.

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