Year-End Financial Planning
The leaves are changing colors and I've consumed 10 gallons of pumpkin spice lattes. It's officially fall and a great time to review what needs to be done before the end of the year.
I like to begin my reviews with what money is coming in the door. Has your income substantially changed in 2019? For those who are making more it's important to review what changes can or should be done. Have you adjusted your withholding? Have you deferred more into your retirement plan to reduce taxes? Are you spending all of your increased income or saving an extra portion?
With the increased standard deduction a lot fewer people will be itemizing deductions. If you're on the borderline have you thought about grouping your deductions in certain years? If you're charitably inclined maybe a donor advised fund would let you deduct a large portion this year and spread out your giving.
I'm guilty of this. Each year my expenses seem to go up in line with my income. If I'm earning 5 percent more I seem to spend 5 percent more. Commit to taking a portion of any raises towards improving your financial health - whether that means stashing more in your 401(k) or paying down debt more aggressively.
If this is a low income year it might make sense to convert some pre-tax retirement accounts into Roth IRAs. You'll pay taxes now but give the conversion a chance to grow tax free for the rest of retirement.
Retirement accounts and life insurance policies don't go through your will. They are paid out according to what the beneficiary form says. Perhaps you've divorced or had another child - UPDATE THESE CHANGES IMMEDIATELY.
Be sure all RMDs have been satisfied. If you miss the deadline the IRS penalties are severe. Many people have difficulty calculating how much to take because they have accounts spread all over. Take this opportunity to consolidate accounts as much as possible to simplify your recordkeeping.
Flexible Spending Accounts
Make sure to include these in your review. Spend all you can so you don't lose your unused funds.
Every single person has a different situation. Your household may not be subject to RMDs yet but you need to figure out how much to put in an Education IRA. The key thing is to not let the calendar flip into 2020 without having done something to improve your finances. I've included a handy checklist that covers many year-end topics. Feel free to share with others. If you feel you need more personalized advice or have a more complex situation feel free to setup a meeting using the link below. I am based in Brookings, South Dakota but available to meet virtually using Zoom as well.
Brian Berkenhoff, CFA is a fee-only financial advisor in Brookings, SD. Serving clients locally in Brookings, Watertown, and Sioux Falls and across the country virtually. Birch Investments specializes in wealth management solutions, including financial planning and investment management.