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Happy holidays! As we head into the holiday season of family, parties and fun, also keep in mind this is the time of year to revisit important personal finance and tax related matters (I know…sorry…but it has to be done). All these areas can be nuanced based on individual circumstances, so if you’re not sure about something, take 15-30 minutes to chat with your financial advisor or tax accountant; a few minutes that could save $1000s.
401k and IRA Contributions
If you participate in an employer 401k this is generally the time of year to revisit your 401k contributions; raise them to the max if you can. Generally, you want them to be spread out evenly over the course of the year to ensure the maximum employer match.
You can contribute up to $6,000 annually to an individual IRA. Technically, deadline is April 15, but good to just get it done now.
This is also the time to review employer provided health insurance and supplemental life insurance plans.
December 31 is the deadline to donate to a charitable cause and still get your tax deduction. But remember the standard deduction for married couples is $24,400 ($12,200 singles) for tax year 2019. So in order to get a tax benefit for charitable deduction, your total itemized deductions, which includes charitable, need to exceed the standard deduction.
Some people are implementing a “bunching” strategy; that’s where you provide a larger charitable donation every 2 or 3 years, as opposed to annually. So instead of $15,000 per year, you might donate $30,000 every 2 years, which enables you to exceed the standard deduction of $24,400 and receive a larger tax benefit.
You could also consider a Donor Advised Fund, which would allow you to make a large contribution in one year, take a tax deduction, but then distribute the funds to charities over the time period you desire.
Gifting or 529 plan contributions
A single person can gift up to $15,000 in 2019 to each person or $30,000 as a married couple. So consider this, if you have 2 children and really want to kickstart their college savings fund you could “gift” $30,000 per child to a 529 college savings plan. A $30,000 gift today would be worth over $50,000 in 10 years (assuming a 6% annual return).
Gifting is an efficient way to share your wealth in a tax free manner.
Required Minimum Distributions (RMDs)
If you are age 70 ½ do not forget to take RMDs from your retirement accounts, including 401ks and IRAs (not required for Roth accounts), or incur up to a 50% penalty on the distribution if you forget.
If you are giving to a charity, it is likely advantageous to directly contribute your RMD (up to $100,000) to the charity, then you do not have to recognize any income for the RMD! This is known as a Qualified Charitable Distribution or QCD, and it’s a great deal.
The above items are fairly common, but there may be other issues unique to you and your financial situation. Take a few minutes to think about it prior to year end and don’t forget to grab some exercise between all the meals and holiday cocktail parties.
Questions relating to this column can be directed to Sean Hathaway, Financial Planning and Investment Advisor; (971) 409-4180; or visit: www.HathawayFinancial.com.
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