December 03, 2019Individual Investment Management

End of Year Planning
What to consider before 2020.

Idea #1:  Convert or Fund a Roth IRA:
If you earn more than $137k as a single filer or $203k jointly you are not allowed to contribute to a Roth IRA for 2019.  There is however, no limit on Roth conversions if you contribute to a non-deductible traditional IRA first, and then convert that to a Roth right away.  It's an excellent option as long as you are willing to pay the tax on monies converted.  If under those limits feel free to fund a Roth directly.   

Idea #2:  Charitable RMD Combo:
Are you giving money away to charity?  An effective way to do this is directly through your IRA in conjunction with required draws from an IRA.  You get the deduction, your RMD is satisfied, and your charity gets its money! 

Idea #3:  Avoid the RMD Penalty.
Many people are unaware of penalties on required minimum distributions (RMDs) on their IRAs if over 70.5 years of age.  If you fail to take the required draw, your penalty will be 50% on the monies you failed to take.  (Note...that number is not a typo....50%!)  If you are of age, check with your advisor to ensure this is covered.

Idea #4:  Take some profits?
This advisor has seen many investors hold on to large stock positions due to the fear of taxable gains.  If you have gains you want to cash in, don't forget that making money is never a real problem - quite often it is wise to cash in some gains to free up cash for other investments or simply reduce your equity exposure.  Most people will pay long-term capital gains taxes on that money anyway which is less than regular income tax rates in many situations.

Idea #5:  Bunch your deductions.
The tax changes of 2017 raised the standard deduction and (among other things) limited the amount you could claim on state and local property taxes.  This means that in order to get over the "hump" of itemizing on your return you may wish to take additional deductions in the current year or accelerate certain cash outlays prior to year end.  Have medical expenses to use?  Charitable contributions to make?  Or other deductible expenses you may have been saving for another year?  It may be wise to use them now.

Idea #6:  Reconsider Muni Bonds.
For older or retired investors, recent changes in IRS code may warrant you taking a look at adding tax-free income to your portfolios.  If the recent run in stocks has left you over-exposed to the market and you are a higher income earner, consider tax-free bonds such as municipal bonds and you may benefit from tax-free income in the coming year.