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Your 2019 Financial Agenda – Elisabeth Dawson – Medium

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Steps to take in the new year for your financial future.

What are your top priorities for 2019 regarding your financial life or business? Lowering your taxes or growing your retirement accounts by using investment strategies paired with budgeting are ideal goals to start with for the coming year. There are countless options, so here are some that may fit your lifestyle.

Do you have additional funds to contribute to your retirement this year? For 2019, the limit for contributions to an IRA, whether a traditional or Roth, increases to $6,000 annually, and $7,000 for anyone making catch-up contributions. Keep in mind that your modified adjusted gross income (MAGI) may impact how much you can transfer to a Roth IRA. Heads of household and single filers with a MAGI over $137,000, as well as those filing jointly with a MAGI above $203,000, are not eligible to make 2019 Roth contributions.1

For your 2019 taxes, you can add up to $19,000 to a 401(k), 403(b), and most 457 plans, with a catch-up contribution of up to $6,000 if you are 50 or older. People who are self-employed may want to look into establishing and funding a solo 401(k) before the end of 2019; since employer contributions can also be made to solo 401(k)s, you may allocate up to $56,000 to one of those plans.1

Your tax positioning could also be improved by your retirement plan. If you participate in a qualified retirement plan or traditional IRA and will not turn 70½ in 2019, your contributions can reduce your taxable income. If you fall into the new 24% federal tax bracket, it is possible to save $1,440 in taxes as a result of contributing a $6,000 to a traditional IRA.2

Keep in mind there are income limits on IRA contributions when you take a deduction. If you participate in an employer’s retirement plan, the 2019 MAGI phase-out ranges are $64,000-$74,000 for singles and heads of households, $103,000-$123,000 for joint filers when the spouse making IRA contributions is a participant in a work-related retirement plan, and $193,000-$203,000 for an IRA contributor not part of a work-related retirement plan, but married to someone who is.1

Roth IRAs and Roth 401(k)s, 403(b)s, and 457 plans are financed with taxed income, so your contributions do not qualify for an immediate tax deduction. However, the advantage is that your contributions, plus any growth, may be tax-free upon future withdrawal, provided you follow I.R.S. requirements.3

The federal tax deadline in 2020 is also the deadline for your 2019 Roth or traditional IRA contribution — just as April 15, 2019 is both the 2018 federal return deadline and the deadline for 2018 IRA contributions. Yet, there is no advantage if you wait until April to contribute since by delaying these contributions you forego any tax-advantaged growth of those assets during that time.1, 3

Is a Roth account your best choice for 2019? If you only have a traditional IRA this might be a wise choice. However, this decision should be considered carefully; there is no longer an option to reverse it due to I.R.S rulings. The potential future advantages should also be compared to the immediate tax consequences. If you make a significant amount of money, your ability to make Roth IRA contributions may be affected by the income phase-out limits. For 2019, phase-outs for joint filers start at $193,000 and at $122,000 for single filers and heads of household. If your high income prevents you from contributing to a Roth IRA it is still important for you to contribute to traditional IRA.1, 4

An additional annotation: withdrawals from specific qualified retirement plans, such as 401(k)s, are not susceptible to the 3.8% Net Investment Income Tax (NIIT) impacting joint and single filers with MAGIs over $200,000/$250,000. (The NIIT limit is just $125,000 for married couples who file taxes separate from each other.) If your MAGI exceeds these limits, then dividends, royalties, non-qualified annuity income, taxable interest, passive income (such as rental income), and net capital gains from selling real estate and assets are all subject to that surtax.5

It is essential to speak with a financial professional before making changes to your IRA in order to understand the impact those changes may have on your financial standing. The estimated taxes resulting from a Roth conversion may change your decision if you have a large IRA account.

What else is at stake for 2019? With the new year, there are additional financial moves you may want to consider.

Donate to charity. In 2019 the standard deduction will increase to $12,000, so from a taxpayer’s point of view there may be less motivation to donate — but these itemized gifts are still deductible. Remember that such donations are tax effective and should be well documented, especially if you donate more than $12,000 to qualified charities.6

If you are donating with cash it is crucial to keep documented proof. A written record from your bank or charity stating the contribution amount along with date and time will suffice. Generally, the I.R.S. does not acknowledge pledges as a donation. In order to claim a deduction, you must donate to a pre-qualified cause or charity that the I.R.S. recognizes. Incidentally, the Tax Cuts and Jobs Act increased the annual amount you can gift to charity — the amount has risen from 50% to 60% of your adjusted gross income.6, 7

Want to gift appreciated securities? For assets you have owned for over a year, you can take a full deduction for the current stock value and avoid capital gains tax which would have been applied if you sold the investment and then donated the revenue. Your deduction may be up to 30% of your adjusted gross income.8

What if the value of the donation surpasses $250? If your gift meets or exceeds this amount you should request a receipt from the charity. While especially important for gifts above this threshold, it is always ideal to receive some sort of documentation no matter the value of your donation.8

To find out if an organization may receive charitable gifts, visit: irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check.

Look into the benefits of an HSA. Consider researching HSA accounts for 2019 if you have a high deductible health plan. Single filers may contribute up to $3,500, or $7,000 for a family that are tax deductible. People age 55 or older, can make up to $1,000 in additional catch up contributions. HSA accounts offer tax free growth as well as withdrawals, when used to pay for qualified health expenses.9

Practice tax-loss harvesting. If you sell shares that have decreased in value in a taxable account, you can offset capital gains or up to $3,000 of income. For married couples who choose to file separately, the annual limit is $1,500. You can even utilize this strategy to compensate for your total capital gains each tax year. If your net losses are above $3,000, the excess may be applied to 2020, as well as future years, in order to continually offset your capital gains and income.10

Make sure you know your asset location. Too often asset location is forgotten as an essential investing strategy. Generally, securities which are not tax-efficient should be held in pre-tax accounts, while your most tax-efficient securities should be in taxable accounts.

Evaluate your withholding status. With the recent introduction of new withholding tables from the I.R.S, you may have updated your withholding last year. However, adjusting for 2019 may still be a good idea if any of these factors apply to you:

– You typically owe a large amount of income tax.

– You usually receive a large tax refund.

– Your marital status recently changed.

– You recently experienced the death of a family member.

– You started a new job and earn considerably more income.

– You became an entrepreneur or are now self-employed.

Are you getting married in 2019? If you are, it’s important that you check the assigned beneficiaries on all of your accounts and assets. Once married, you should update any beneficiary forms that correspond with your accounts or insurance policies. You should also plan to obtain a new Social Security card if you will have a new last name. Since you and your new spouse will have separate retirement accounts and investments, plan to revise and adjust as needed.

Will you be returning from active duty? If so, be sure to check on your credit and the status of any tax and legal proceedings which may have been preempted by your orders. Confirm that any employee health insurance you had is still active. If you granted power of attorney to another person, remember to revoke it upon your return.

Calculate possible tax consequences on planned transactions. Do you intend to purchase or sell real estate (or a business) in the near future? Are you thinking about using your stock options in the next year? Will you be receiving any notable bonuses or commissions in 2019? Do you have any tax-deferred investments that you plan to sell? All of these decisions can influence your 2019 taxes.

Remember to take your RMD if you are retired and over age 70½. You must take a Required Minimum Distribution (RMD) by December 31st from traditional IRAs, 401(k)s, SEP IRAs, and SIMPLE IRAs if you are retired and over 70½. There is a 50% penalty imposed by the I.R.S. if it is not withdrawn.4, 11

You have the option to postpone your initial RMD until April 1st of the year following when you reach age 70½. All other RMDs must be taken by December 31st of the same year the RMD is assigned. Therefore, if you delay your first RMD, you will need to take two RMDs in the same calendar year resulting in two taxable distributions. For example, if you turn 70½ in 2018 and choose to delay taking your 2018 RMD until the beginning of 2019, you will also need to take your 2019 RMD by December 31, 2019.11

You can benefit from prudently planning your RMDs. Depending upon your situation, thoughtful planning can help you avoid taxes on your Social Security payments, due to the often-overlooked “provisional income” rule. If your non-taxable interest income, adjusted gross income plus 50% of your Social Security income exceeds a certain threshold, then a portion of your Social Security will become taxable. The income levels are $32,000 for joint filers and $25,000 for single filers at which Social Security benefits begin to be taxed.11

Would you benefit from making a 13th mortgage payment in 2019? There may be an advantage to making a mortgage payment in December of 2019 for January 2020. If your mortgage is a fixed-rate loan, a lump sum payment can directly decrease your principal and interest paid.

Make it a goal to talk to a financial professional and plan to protect your wealth in 2019.

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Elisabeth Dawson is a financial advisor and the author of Wealth by Design. She is also the founder and CEO of Copia Wealth Management Advisors, Inc. and Copia Wealth Management & Insurance Services, designed to help clients achieve financial greatness.

Citations.

1 — forbes.com/sites/ashleaebeling/2018/11/01/irs-announces-2019-retirement-plan-contribution-limits-for-401ks-and-more [11/1/18]

2 — irs.com/articles/2018-federal-tax-rates-personal-exemptions-and-standard-deductions [11/2/17]

3 — irs.gov/Retirement-Plans/Traditional-and-Roth-IRAs [7/10/18]

4 — forbes.com/sites/bobcarlson/2018/10/26/7-ira-strategies-for-year-end-2018/ [10/26/18]

5 — irs.gov/newsroom/questions-and-answers-on-the-net-investment-income-tax [6/18/18]

6 — crainsdetroit.com/philanthropy/what-donors-need-know-about-tax-reform [10/21/18]

7 — thebalance.com/tax-deduction-for-charity-donations-3192983 [7/25/18]

8 — schwab.com/resource-center/insights/content/charitable-donations-the-basics-of-giving [7/2/18]

9 — kiplinger.com/article/insurance/T027-C001-S003-health-savings-account-limits-for-2019.html [8/28/18]

10 — schwab.com/resource-center/insights/content/reap-benefits-tax-loss-harvesting-to-lower-your-tax-bill [10/7/18]

11 — fool.com/retirement/2018/01/29/5-things-to-consider-before-tapping-your-retiremen.aspx [1/29/18]

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