2020 Annual Financial To-Do List


Things you can do for your future as the year unfolds.Image result for to do list

What financial, business, or life priorities do you need to address for the coming year? Now is a good time to think about your goals!  Here are a few ideas to consider as you plan the year ahead:

Can you contribute more to your retirement plans this year? In 2020, the contribution limit for a Roth or traditional individual retirement account (IRA) remains at $6,000 ($7,000 for those making “catch-up” contributions). Your modified adjusted gross income (MAGI) may affect how much you can put into a Roth IRA: singles and heads of household with MAGI above $139,000 and joint filers with MAGI above $206,000 cannot make 2020 Roth contributions.

Before making any changes, remember that withdrawals from traditional IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½.

Also consider maxing out your retirement plan at work.  For 2020, the maximum employee contribution is $19,500 for those under age 50 and $26,000 for those age 50 and older.

If you are self-employed, the maximum amount you can contribute can increase and is dependent on your net income.  In addition, if you have a Roth contribution option available in your retirement plan, please let us know and we can analyze whether building up that bucket of after-tax money makes sense for you.

Speaking of Roth’s, if you contributed to a Roth IRA in 2019, but now find that you made too much money to contribute, you can remove the excess contribution (plus earnings) before your tax filing deadline without incurring a penalty.  Please contact us (or your tax advisor) as soon as possible if you find yourself in this situation.  We can help you correct it and avoid any penalty!

Make a charitable gift. You can claim the deduction on your tax return, provided you itemize your deductions with Schedule A.

Donor Advised Funds are a great way to make sure your charitable contributions qualify for a deduction and you may consider a potential “lump and clump” strategy every other year while utilizing the higher standard deduction in the opposite years.

See if you can take a home office deduction for your small business. If you are a small-business owner, you may want to investigate this. You may be able to legitimately write off expenses linked to the portion of your home used to exclusively conduct your business.   

Open an HSA. This is one of our favorite tax advantaged type of accounts to use for medical purposes now and in your retirement years. A Health Savings Account (HSA) works a bit like your workplace retirement account. There are also some HSA rules and limitations to consider. You are limited to a $3,550 contribution for 2020, if you are single; $7,100, if you have a spouse or family. Those limits jump by a $1,000 “catch-up” limit for each person in the household over age 55.

If you spend your HSA funds for non-medical expenses before age 65, you may be required to pay ordinary income tax as well as a 20% penalty.  After age 65, you may be required to pay ordinary income taxes on HSA funds used for nonmedical expenses. HSA contributions are exempt from federal income tax; however, they are not exempt from state taxes in certain states.

HSAs are a great way to save for future medical bills, too!  If you have an HSA available to you, please take advantage of it!

Pay attention to asset allocation.  For those accounts that are not under professional management, a review of the asset allocation is a very important (and often ignored) fundamental of investing.  The U.S. stock market had a significant run in 2019 and, therefore, you may consider taking some of that gain and redeploying to the asset classes that are positioned for growth going forward.

Review your withholding status. Should it be adjusted due to any of the following factors?

* You tend to pay a great deal of income tax each year.

* You tend to get a big federal tax refund each year.

* You recently married or divorced.

* A family member recently passed away.

* You have a new job and you are earning much more than you previously did.

* You started a business venture or became self-employed.

Are you marrying in 2020? If so, why not review the beneficiaries of your retirement accounts and other assets? When considering your marriage, you may want to make changes to the relevant beneficiary forms. The same goes for your insurance coverage. If you will have a new last name in 2020, you will need a new Social Security card. Additionally, the two of you may have retirement accounts and investment strategies. Will they need to be revised or adjusted with marriage?

Consider the tax impact of any upcoming transactions. Are you planning to sell any real estate this year? Are you starting a business? Do you think you might exercise a stock option? Might any large commissions or bonuses come your way in 2020? Do you anticipate selling an investment that is held outside of a tax-deferred account? Please let us know and we can help you prepare and strategize.

If you are retired and older than 70½, remember your year-end RMD. Retirees who turned 70 ½ in 2019 must begin taking Required Minimum Distributions from traditional IRAs and 401(k), 403(b), and profit-sharing plans by December 31 of each year (the first year of RMD can be pushed to April 1st of 2020).

The changes to Required Minimum Distributions from the SECURE Act that was signed into law on Friday, December 20, 2019 went into effect on January 1, 2020.  If you turn 70 ½ in 2020 or later you will not be required to take distributions from your qualified retirement accounts until you are age 72.  If you turned 70 ½ in 2019 or before, you will be required to take distributions like you have in the past under the old rules.

The I.R.S. penalty for failing to take an RMD can be as much as 50% of the RMD amount that is not withdrawn.

If you are unsure how the new law will affect your situation, please contact our office and we will talk you through it.

Your tax forms are available on your custodian’s website or they will be sent to you by mail no later than February 15th.  Let us know if you need help accessing your documents. 

As a security reminder, the I.R.S. will never, ever call you on the phone and ask you to provide personal information.  They will always send you a letter. 

Vow to focus on being healthy and wealthy in 2020, while creating peace around the issue of money. And don’t be afraid to contact us for situations that need our guidance in between our regularly scheduled meetings.  We look forward to seeing you soon!