Finance
June 5, 2020
link to facebook link to twitter
More Stories
Saving early and letting time work for you Why should you see your financial advisor? Now's the time to focus on financial health in the workplace ABLE accounts for loved ones with disabilities Details on the tax deadline extension Pullbacks, corrections and bear markets Traditional Vs. Roth IRA Retirement planning weak spots; they are all too common Should you care what the financial markets do each day? Adjusting your portfolio as you age When is Social Security income taxable? Debunking a few retirement myths Retirees, check your withholding Underappreciated options for building retirement savings Social Security gets its big boost No, that is not the I.R.S. calling Is Gen X preparing adequately for retirement Tax scams and schemes Diversification, patience and consistency Signs of elder abuse The high cost of health care TOD or living trust? Coping with an inheritance Three key questions to answer before taking Social Security The financial realities of longevity Systematic withdrawal strategies Managing risk in your portfolio Will you avoid these estate planning mistakes? Cybersecurity for the at home customer Fixed index annuities Getting a head start on college savings New I.R.S. contribution limits Health care costs are cutting into retirement preparations Ways to fund special needs trusts A look at the different options & strategies The different types of IRAs Annuities for retirement income Annuities for retirement income What prospective annuity holders should consider Build your rainy day fund Details people should know about Medicare Five retirement concerns too often overlooked Investing means tolerating some risk Your diversified portfolio vs. S&P 500 Making a charitable gift from your IRA Smart financial moves in your 20s, 30s, 40s and 50s Unrealized loss and gain What they are; why they matter. Making investment decisions Do your investments match your risk tolerance? Helping your parents manage financial tasks Taking charge of your financial life Roth IRA conversions What are your options? Major risks to family wealth The gift tax Not all gifts are taxable. Rebalancing your portfolio Reducing the risk of outliving your money That first RMD from your IRA. What you need to know Tax efficiency What it means; why it counts Your changing definition of risk in retirement 2019 IRA deadlines are approaching The SECURE Act The major retirement planning mistakes Why are they made again and again? Establishing good credit in college Retirement plans for individuals & businesses A retirement fact sheet Annual financial to-do list Things you can do for your future as the year unfolds. College funding options Ways to ease college costs Turn your intent into a commitment, set goals as you save and invest Managing money well as a couple Preparing to retire single Tax efficiency in retirement Set goals as you save and invest Could assumptions harm your retirement strategy? A retirement gender gap for women Bad money habits to break Have you budgeted for retirement? Saving your elderly parents from financial fraud Mutual Funds vs. ETFs; similarities and differences. What should you keep? Long-term investing truths: Key lessons for retirement savers Where will your retirement money come from? Retiring in the next 5 years? Catching up on retirement saving Money tips for newlyweds Retirement and adult children The retirement mind game Tax considerations for retirees Smart moves for new parents When you retire without enough ABLE accounts for disabled When a family member dies An executor checklist The retirement we imagine, the retirement we live Steps to catchup if you are behind on your retirement savings? Your financial co-pilot Yes, young growing families can save and invest Why don’t all affluent people become wealthy? Beneficial moves for every age Keep calm, stay on plan

Annual financial to-do list

By: Ken Weise
March 27, 2020

Things you can do for your future as the year unfolds. 

What financial, business, or life priorities do you need to address for the coming year? Now is a good time to think about the investing, saving, or budgeting methods you could employ toward specific objectives, from building your retirement fund to managing your taxes. You have plenty of choices. Here are a few ideas to consider:

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 59, may be subject to a 10 percent 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 59.

Make a charitable gift. You can claim the deduction on your tax return, provided you itemize your deductions with Schedule A. The paper trail is important here. If you give cash, you need to document it. Even small contributions need to be demonstrated by a bank record, payroll deduction record, credit card statement, or written communication from the charity with the date and amount. Incidentally, the Internal Revenue Service (I.R.S.) does not equate a pledge with a donation. If you pledge $2,000 to a charity this year, but only end up gifting $500, you can only deduct $500.

These are hypothetical examples and are not a replacement for real-life advice. Make certain to consult your tax, legal, or accounting professional before modifying your strategy. 

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. Using your home office as a business expense involves a complex set of tax rules and regulations. Before moving forward, consider working with a professional who is familiar with home-based businesses.

Open an HSA. 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 nonmedical expenses before age 65, you may be required to pay ordinary income tax as well as a 20 percent 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.

Pay attention to asset location. Tax-efficient asset location is an ignored fundamental of investing. Broadly speaking, your least tax-efficient securities should go in pretax accounts and your most tax-efficient securities should be held in taxable accounts.

Before adjusting your asset, consider working with an investment professional who is familiar with tax rules and regulations. 

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. 

 

These are general guidelines and are not a replacement for real-life advice. So, make certain to speak with a professional who understands your situation before making any changes.

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?

Are you coming home from active duty? If so, go ahead and check the status of your credit as well as the state of any tax and legal proceedings that might have been preempted by your orders. Make sure any employee health insurance is still there and consider revoking any power of attorney you may have granted to another person.

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? 

If you are retired, and in your seventies, remember your RMDs. In other words, Required Minimum Distributions (RMDs) from traditional retirement accounts. There is a new development to report on this, as the Setting Every Community Up for Retirement Enhancement (SECURE) Act just altered a key rule pertaining to these mandatory withdrawals. Under the SECURE ACT, in most circumstances, once you reach age 72, you must begin taking RMDs from most types of these accounts. The previous “starting age” was 70. 

This new RMD rule applies only to those who will turn 70 in 2020 or later. If you were 70 when 2019 ended, you must take your initial RMD(s) by April 1, 2020, at the latest.

If you have already begun taking RMDs, your annual deadline for them becomes December 31 of each year. The I.R.S. penalty for failing to take an RMD can be as much as 50 percent of the RMD amount that is not withdrawn.

Vow to focus on being healthy and wealthy in 2020. And don’t be afraid to ask for help from professionals who understand your individual situation. 

 

Ken Weise, an LPL Financial Advisor, provided this article. He can be reached at 707-584-6690. Securities offered through LPL Financial. Member FINRA/SIPC. The opinions of this material are for information purposes only.