As we head toward the end of 2019, now is a good time to think about your financial to-do’s and priorities for the new year. This is especially true since the new year will mark the start of a new decade.
Here are 5 areas to examine as you prepare financially for the new year.
In 2020 you each can contribute up to $6,000 to your traditional IRAs, or $7,000 if you’re 50 years of age or over. So if you’re both over 50, that’s a total annual contribution of $14,000. The best way to max out your contributions is to have a combined $1,166 automatically transferred into your accounts each month (14,000 ./. 12). The contributions should be split evenly between the accounts, with $583 per month going into each one.
Be sure to retain documentation at the time when you make charitable donations so you aren’t scrambling at the end of the year to find it. For donations of non-cash items like used clothing and furniture that are worth less than $250, obtain a receipt listing the name of the charity, description of the item, and date and location of the donation. If the items are worth more than $500, obtain an acknowledgement describing how and when you obtained the item and its cost or other basis.
Now is a good time to re-examine your withholding status to make sure that the right amount of money is being withheld from your pay to cover federal and state taxes. This is especially important if you were newly married or divorced or started a new job this year. The IRS withholding estimator can help you figure out the right amount of money that should be withheld from your pay.
If you or your spouse turned 70½ this year, you must take your first RMD by April 1, 2020. In subsequent years, you’ll have until December 31 to take your RMDs. Consult IRS Publication 590-B for guidance in determining how much you need to withdraw from your traditional IRA or 401(k) each year to meet the requirements.
The proper asset allocation for you will depend mainly on your time horizon, risk tolerance and investing goals. If you’re relatively young, for example, and have many years until retirement, you may choose a more aggressive asset allocation with a higher concentration of stocks and lower concentration of bonds and cash equivalents. But if you’re older and nearing retirement, you might choose a less aggressive asset allocation since you have less time to recoup short-term losses.
Over time, your asset allocation can shift due to market movements. This is why it’s important to re-examine it periodically, such as at the end of the year, and make adjustments if necessary. For example, you might need to sell securities in one asset class and purchase securities in other asset classes to bring your allocation back in line with your long-term investing objectives.
Please contact us if you have more questions about these and other items on your financial to-do list.