2019 Year-End Financial Planning Checklist
As 2019 draws to a close, it’s time to review your finances and look forward to the upcoming year. The last few weeks of the year tend to be a mad rush to wrap up loose ends, usually in a frantic fashion. Taking a few moments to calmly plan can help you take advantage of opportunities to grow your wealth and get you one step closer to reaching your goals. Here are several brief topics of financial advice to consider in the coming weeks that could ultimately add to your long-term bottom line as well as give you peace of mind.
Emergency Fund
If you have not already done so, give yourself and your family the gift of an emergency fund. Our recommendation is that you have six months worth of expenses saved and easily accessible in a low risk and liquid type of an account such as a money market account. You can reduce the size of your emergency fund by any guaranteed income you receive, such as paychecks, pension, Social Security, or Municipal Bond income.
Required Minimum Distributions
If you are age 70 ½ or older in 2019 and own a traditional IRA, 401(k), or 403(b) it’s time to develop a strategy for taking your Required Minimum Distribution (RMD). If you do not take your full RMD by December 31st, you will be subject to a 50% penalty on the portion of the RMD that has not been taken. An IRA owner who owns several accounts has the option of taking the RMD out of each account separately or may decide to take the distribution from just one. If the decision is made to take the RMD out of one account, the distribution amount must be calculated on the aggregate of the IRA balances.
What will you do with the RMD if you do not need the cash? A Qualified Charitable Distribution (QCD) may be a good strategy as it could potentially reduce the amount of tax owed. A QCD is a non-taxable distribution made directly from your IRA to an eligible charity. In addition, these distributions do satisfy the RMD. In order to qualify for a QCD, the IRA owner must be at least 70 ½. In 2019, the maximum amount that can be donated through a Qualified Charitable Distribution is $100,000 per IRA owner.
IRA Contributions
Almost anyone can contribute to a Traditional IRA, provided you or your spouse receive taxable income and are under age 70 ½. If you are eligible to make a deductible contribution, this would be an excellent alternative to a 401(k) contribution. The 2019 maximum total annual contribution for all your IRAs combined is $6,000 if you’re under age 50 and $7,000 if you’re age 50 and over. You have until the tax filing date of April 15, 2020 to fund this account. Make sure that any 2019 contributions made in 2020 are categorized accurately as a 2019 contribution when you make the deposit. Roth IRA limits work similarly to Traditional IRAs, but contribution eligibility is subject to income phase-outs.
Maximize Workplace Retirement Plans
If you have, a 401(k) or another retirement plan at work, remember to make your allowable 2019 contributions before the end of the year. In 2019, the maximum contribution is $19,000 for employees under age 50. For those age 50 and over an additional $6,000 catch-up contribution is allowed for a contribution maximum of $25,000. Many people just set and forget their workplace retirement plans. It’s always a good idea to review and periodically rebalance your 401(k) investment options. Due to outperformance or underperformance by some of your investments, the account can become over-weighted toward one asset class. Rebalancing ensures that you’re not taking too much risk and your account is in line with your overall asset allocation. While you can do this at any time, year-end is a convenient time to review. Do not forget about those 401(k) plans with your former employers. Many employer sponsored plans have limited and poor performing investment options, not to mention high fees. Seize the opportunity and roll over your old 401(k) account to a low-cost IRA for greater investment options.
Estate Planning
The end of the year is a good time to review your overall estate plan and make sure it stays in tune with your overall goals. You should make updates on an ongoing basis to account for any life changes or other circumstances. A good starting point is to verify and update your beneficiary designations on your retirement accounts and life insurance policies. For example, it’s all too common to accidently leave an ex-spouse listed as a beneficiary. Fidelity provides this information on its annual form 5498, sent in the first quarter for your IRA accounts. Take a close look at the successor trustee appointment named in your trust document. Also, the agent designation named for both your powers of attorney and health care advanced directives; make sure you are pleased with your choices. Review your trust provisions and verify the proper assets are titled in the name of the trust. Finally, ensure that you fully understand all of your documents.
The most important step you can take as the year comes to an end is to contact us at Provident Investment Management with any questions or concerns you might have in order to ensure that everything is on target with your financial situation.
Dan Krstevski, CFP®