Address These 5 Financial To-do’s for 2020

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.

1. Retirement plan contributions — Now is the time to plan if you want to contribute as much money as possible to your retirement accounts next year. For example, suppose you and your spouse want to max out contributions to your traditional IRAs next 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.

2. Charitable gifts — By planning ahead, you can help ensure that the charities you want to support next year are able to maximize the impact of your financial gifts. Planning now can also minimize the hectic rush this time next year in trying to make last-minute donations and gather paperwork in order to reap tax advantages from charitable gifts.

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.

3. Withholding status — Many people received unpleasant surprises earlier this year when their tax refunds were smaller than they expected. This was often due to the changes in marginal tax rates that were part of the Tax Cuts and Jobs Act.

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.

4. Required minimum distributions (RMDs) — If you or your spouse own a traditional IRA or 401(k) and you’re 70½ years of age or over, you must begin withdrawing a minimum amount of money from your account each year. You should plan well in advance for how you’ll make these required minimum distributions (RMDs) because failure to do so may result in steep penalties.

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.

5. Asset allocation — Now is also a good time to take a fresh look at the allocation of assets in your retirement accounts and other investment portfolios. This refers to how your investment assets are spread out among the primary asset classes of stocks, bonds and cash equivalents (such as money market accounts and CDs).

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.