Three Days to Get These Done
My desk is full of “to-do” lists. As I crossed off my final item, I thought I would share these with you all while we still have 3 business days left in the year, the decade, to help with your personal finances. The point of these “to-dos” is simple. It about exercising our financial discipline, saving for our future, and reducing our taxes. Today, I see far too many folks out there looking for a quick buck, a short cut, or a fast track to financial independence. There is no such thing. There are other things you can do right up until the tax deadline, but these must be done before the year-end. This is going to a brief update with the intention of pushing you to get these done. I’m not going to go into all the details of income limits, amounts, etc. because I think it’s important that everyone works to improve their financial literacy. You can find a ton of information with simple google searches and we’re happy to help in person, but I’ll provide links to some good information below for your researching pleasure.
Max Out Your Active Retirement Plan Contributions:
This is obvious advice and seldom followed. We know the average good American over the age of 60 has a total of $56,000 in retirement assets. I won’t comment on what that means because you already know, and it would make me sound callous and insensitive.
Active retirement plans are those available through your work, like the typical 401k, Roth 401k, Solo 401k, etc. These elective contributions must be made by the year-end. If you have the means, you can send your entire last paycheck to your 401k in order to increase your contribution up to the max.
Here is a link to the Motley Fool which covers all the details of what you can and can’t do for 2019
https://www.fool.com/retirement/what-are-the-2019-401k-contribution-limits.aspx
Make Those 529 Contributions:
529 plans are state-sponsored education plans that function on a calendar year basis. Contributions are deductible against state income taxes if made to the state plan of the contributor. Gains and principal grow tax-FREE if used for education. I live in Colorado, so I contribute to the Colorado plan in order to get a dollar for dollar deduction against my CO state income tax. Contribution limits are not complex but there are some rules from the venerable Nerd Wallet.
https://www.nerdwallet.com/blog/investing/529-plan-rules/
This year, we did not have any really oversold market opportunities to issue our “Calling All Cars” instructions to add new money to 529 plans. At this point, we would recommend just making the annual contribution to the plan and either invest it according to your current allocation or just send it to cash and wait for a healthy discount in 2020, because we will have a healthy discount in 2020. Please contact us if you would like our 529 plan investment strategy guide.
Health Savings Account Contributions:
Most have probably already done this for 2019, and maybe even spent the money in the plan on healthcare-related expenses. We would strongly recommend the following with regards to HSA plans, again if you have the means and the cash flow to do it. Make the annual contribution to your HSA plan.
Here’s a good Kiplinger article with the details and rules
The dollars inside your HSA plans should remain invested in the plan until you are much older and have much higher healthcare bills. HSA accounts are the least used or talked about the venue for triple tax benefits. Let me explain. First, the contribution goes into the plan on a deductible basis against your Federal Income taxes. Second, you can invest these dollars inside the plan. Third, these investment gains over time are tax-free if used for any healthcare purpose. It’s like a deductible Roth IRA for health care. The trick is to pay for out of pocket healthcare expenses with money out of your pocket, rather than drain your HSA every year. Think of it as a healthcare retirement plan. Get er done!
Last one
Roth IRA Conversions must be done by 12/31:
If you plan to convert any IRA money to a Roth, it must be done by the end of each calendar year. Most people miss this one because IRA contributions can be made for the current year, right up to the tax filing deadline (April 15th of the next year). Conversion rules are tricky and situational, and you can find the details here.
https://www.goodfinancialcents.com/roth-ira-conversion-tax-rules/
I do like the “backdoor “ Roth IRA contribution trick for those who have incomes that disallow direct Roth IRA contributions. While the backdoor is still open, let’s use it.
https://www.nerdwallet.com/blog/investing/backdoor-roth-ira-high-income-how-to-guide/
It takes a bit of work but this is about your future. Most households do very little of this. Most households in our country don’t have enough for retirement, college or to cover their healthcare-related expenses. Do what you can do to help yourself.
We have an enormous pile of announcements coming as we roll into the new year. Our company is turning an important corner and we’re excited to finally make these changes public. Get ready, get set…
I hope everyone is enjoying the holidays with friends and family this season. We are always grateful to our many clients for their loyalty and trust over the years. It’s been an incredible 25-year ride (hint) and we’re excited to serve you in the years to come.
Cheers
Sam Jones – President, All Season Financial Advisors, Inc.
