Year-end planning for 2019
Dec. 2, 2019 Article

Year-End Planning Review: Tips to Help Wrap Up 2019 and Prepare for 2020


If you’re like many people, the end of the year is a time of personal review and reflection. As you assess your progress toward your personal goals and commit to goals for the new year, don’t forget to evaluate your financial progress. Now is the time to identify any last-minute items that can help you stay on track toward your financial goals. The following are common planning items that you may want to think about as you wrap up the year.

Establish Required Minimum Distributions (RMDs)

If you are an IRA owner who turned 70 ½ during 2019, you have until April 1, 2020, to take your first RMD. You must then take a second distribution by Dec. 31, 2020. If you are an IRA owner who has already started taking required distributions, you have until Dec. 31, 2019, to do so.

It is important to ensure the total RMD amount is satisfied across all qualified retirement plans and IRAs. As long as the full RMD amount is satisfied, you may choose to withdraw the RMD from a single IRA or from a combination of IRAs. If you have reached age 70 ½ and are still working, you are not required to take an RMD from your employer sponsored retirement plan until you retire.

Make a Charitable Gift Directly from your IRA

Qualified Charitable Distributions (QCDs) allow people over age 70 ½ to redirect up to $100,000 of a RMD to charity. This can be a meaningful benefit, as any amount contributed to a public charity is excluded from the calculations that impact overall tax rates, the taxation of Social Security benefits, income tax phase-outs and Medicare premiums.

Review Your Life Changes

Whether you experienced the death of a loved one, a marriage or the birth of a child, it’s important to consider the impact of those changes on your overall financial plan. Drafting new wills and durable powers of attorney are critical first steps for newly married couples and new parents. Also, double-check that your beneficiary designations and titles remain up to date on all accounts. From IRAs to savings accounts, and more, make sure your life changes are reflected across your entire financial life.

Minimize Taxes by Spreading Out Income

If your income varies from year to year, or if you expect to be in a different tax bracket in the future, consider using multi-year projections to take advantage of long-term planning opportunities to help minimize income taxes. Examples of such planning strategies include accelerating the timing of income or recognition of capital gains so that lower tax brackets can be filled. Conversely, consider postponing the receipt of income or capital gains and accelerating the receipt of losses to potentially reduce your income in higher tax years.

Consider the Annual Gift Tax Exclusion

For 2019, the annual gift tax exclusion allows an individual to give up to $15,000 ($30,000 for married couples filing jointly) tax-free as a gift. This amount would not count toward the individual lifetime exclusion.

Give the Gift of Education

Parents and grandparents who wish to support a child’s future educational costs often contribute to 529 accounts. These accounts provide an opportunity for funds to grow tax deferred for several years before being withdrawn tax-free to pay for the child’s eligible educational costs. Gifts to a 529 are subject to the annual exclusion amount of $15,000 (as noted above), but these accounts provide a unique opportunity to front-load five years’ worth of gifts at once. The way it works is that you contribute $75,000 per child in the first year and treat it as if you gave $15,000 per year for each of five consecutive years.

From a year-end planning perspective, families that wish to take advantage of this front-loading rule and haven’t contributed to the child’s 529 in 2019 can gift one year of annual exclusions before Dec. 31, then gift an additional $75,000 to the 529 plan after the first of the year to cover the next five years of contributions. An added benefit to gifting to 529 plans is that most states allow for the gift amount to either be fully or partially tax deductible at the state tax level. With the ever-rising cost of a college education, funding these types of taxdeferred plans early, while also potentially receiving a tax benefit, can pay off in the future.

Use a Donor-Advised Fund

A donor-advised fund (DAF) provides an opportunity to make a large donation now and take the tax deduction this year, while deferring the decision on which charity will receive the funds. Given the standard deduction of $24,000 for married couples, you can make a donation above the standard deduction amount to the fund this year, allowing you to itemize your tax return, take a larger deduction than the standard deduction, and spread the contributions to charities from the DAF out over the next several years. In the end, you give the same amount to charities you otherwise would but reap the tax benefit of itemizing on your return.

Don’t Forget About Appreciated Securities

There’s nothing wrong with using charitable giving as a tax strategy. Financially supporting the causes you care about can be a win-win for both you and the organization. As you seek to reduce your tax liability, consider donating appreciated securities (assets you own that have increased significantly in value of one or several years). By doing so, you can avoid capital gains taxes on those assets. In addition, this increases the value of the gift when compared to selling the stock, paying capital gains tax and then giving the proceeds to charity.

Consider a Roth IRA Conversion

The end of the year can be a good time to consider whether a Roth IRA conversion makes sense. In a traditional IRA, contributions are generally tax deductible and distributions are taxed as ordinary income. In contrast, contributions to a Roth IRA are not tax deductible, but earnings can be withdrawn income tax free if you have reached age 59 ½ and have held the Roth IRA for at least five years.

Converting a traditional IRA to a Roth IRA doesn’t make sense for everyone, but you may consider it if:

  • You have a long time until retirement
  • You anticipate being in the same or higher tax bracket when you begin distributions
  • You are currently experiencing a year of lower income, whether from switching jobs or retirement
  • You can pay the tax from sources other than the IRA

Contact your Advisor

Questions about implementing any of the above year-end planning strategies? Contact your wealth advisor for guidance related to your specific situation.

Data source:

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