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Year End Financial Planning Tips

If you haven’t done so already, consider any applicable year-end tax moves for 2019. These moves include:

  • Maxing out contributions for 401(k), 403(b), Thrift Savings Plans, 457, and IRAs. See the table below for limits. 
  • Taking Required Minimum Distributions (RMDs) if you’re 70 ½ or older. For RMD takers who make charitable contributions, consider donating directly from your retirement account. In doing so, you can satisfy the RMD and avoid booking ordinary income (and therefore avoid income taxes); the result is better than a normal charitable deduction. There is a limit to giving and other considerations, so talk to your Cadinha adviser and CPA if you are considering taking advantage of this.
  • Checking with your CPA if converting retirement plans to a Roth makes sense. Converting probably doesn’t make sense for most, but you may be a candidate if:
    • Your income is cyclical and 2019 is a low-income year for you or you have losses or tax credits that will offset the tax bill;
    • You are moving from a low-income tax state to a high tax state;
    • You believe tax rates are going up and want some sort of tax insurance.
    • Note: There are many considerations and nuances when it comes to Roth. Your tax professional is your best resource.
  • Communicating any relevant information and change in circumstances with your Cadinha adviser. For example, do you have any material capital gains or losses that may be offset by selling holdings in your taxable accounts? Have your retirement plans changed? Are you considering setting up a 529 plan for the grandchildren?
  • Gifting:  The limit one can give to another without gift tax is $15,000 in 2019. If you give cash to your children or grandchildren, don’t wait until the end of 2019, especially if that gift is going to a 529 college savings plan or you plan to give securities in lieu of cash to someone. 

Tax changes
Last week the IRS announced some changes for 2020, including retirement contribution limits. IRA contribution limits remain the same, as does tax-free gifting limits.

Account 2019 Limit 2020 Limit
401(k), 403(b), Thrift Savings Plan, most 457 plans   $19,000 $19,500
Catch-up contributions for those 50 and older   $6,000 $6,500
Defined contribution plan
(e.g. 401(k)) maximum contribution (employee plus employer)  
$56,000 $57,000
SIMPLE retirement accounts   $13,000 $13,500
IRAs (traditional and Roth)   $6,000 $6,000
Catch-up contributions for those 50 and older $1,000 $1,000

The Estate Tax exclusion rises from $11.4 million per person for 2019 to $11.58 million for 2020. The gift allowance remains the same in 2020 at $15,000. 

About the Author

Neil Rose, CFA
President & Chief Investment Officer




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