End of Year Stuff to Know

End of Year Stuff to Know

WOW! It’s the end of the year—and of this decade. My, how time flies (whether you’re having fun or not)! With next year right around the corner, there are some strategies and activities you should know about and take advantage of. The past decade has been a profitable and strong economic environment compared to 2000–2010. With such a strong background, getting ready for the next decade is key. So here are the things you need to know and do:

How Did You Handle Your Money?

This is a great time of the year to see what you have done with your money. If you’re working with us, you’ll be able to see this data on our Personal Financial Dashboard (PFD). It breaks out the spending by categories, when you spent it and how much you spent your money. Your banks, and often credit card companies, will also provide you with a categorized listing. Take time to see how you handled your money and think about what changes you plan to make next year.

Changes in Your Lifestyle?

If your circumstances or lifestyle have changed, this could necessitate updating your employee benefits, estate planning documents, and beneficiaries. Beneficiaries are key, and often times people forget to review their retirement and life insurance contracts to change their beneficiaries. Be sure to take a quick peek at these documents to make sure you’ve got the right folks in the right places.

Are You Turning 50 Next Year?

If so, you need to be aware of some key strategic retirement savings options to consider. First, no matter which month you’re turning 50, you can ramp up your retirement savings by increasing your contribution. It’s called the catch-up provision, and it allows you to put away more than the basic contribution. For 401(k) and 403(b) accounts, catch-up contributions require a separate application, so be sure to sign up for them. In 2020, the catch-up provision allowance will increase from $6,000 to $6,500. Additionally, allowed 401(k) contributions will increase from $19,000 to $19,500. So if you sign up for catch-up, you’ll be able to sock away $26,000 into your retirement account.

Are You Turning 70½ Next Year?

If you are, the IRS wants to hear from you. That's because most people who have saved for their retirement have their savings in accounts that are tax-deferred, such as a 401(k) or 403(b) and IRA accounts. The IRS (and your state) want their tax revenue. So at 70½, you must begin taking what is called a Required Minimum Distribution (RMD) from your retirement accounts. There is a formula that is applied, and the percentage increases every year because you’re one year older. If you don’t take your RMD out, there is a 50% tax penalty based on the value of what should have been paid out. For example, if your RMD amount is $10,000 and you don’t take it out, then the tax penalty will be $5,000 plus your regular income taxes on that $10,000 distribution. YIKES! You do have the option to defer taking the RMD the first year you turn 70½—but you have to take it out by April 1st of the following year, and, of course, you also need to take that current year’s RMD before the end of the year to avoid that 50% penalty.

Want to Give Back?

With the Tax Cut and Jobs Act, many nonprofits have been negatively impacted by lower charitable donations. Because the standard deduction was raised in 2019 to $12,200 for singles and $24,400 for married couples—and it will be increasing again in 2020—many people have not had tax-deductible expenses in excess of the standard deduction. This translates into many not having the option to get a tax deduction for their charitable donations. But there are ways to navigate around that.

  • Donor-Advised Funds are a simple and easy-breezy way to make donations to organizations that you are passionate about. It’s essentially like setting up a “Foundation” account, but without the red tape and regulatory oversight. To learn more about these types of accounts, visit Schwab’s Donor-Advised Fund web page.
  • If you’re taking an RMD, you can donate all or a portion of it to a charity. While you won’t be able to take a separate deduction for the contribution, the RMD funds will not be taxable. For example, if you need to take an RMD of $10,000 from your IRA, which would be taxable as income, the funds can be donated to one or more nonprofits. You will have met your RMD requirements, but it will not show up as taxable income, and the charity gets your generous donation.

We have lots more to share with you as we head into the next decade, but for now this is a good start. There will be more to come over the next several months, so keep your eyes and ears open.

Cheers, and happy holidays from Urban Wealth Management!