As you try to navigate the busy months until year end, financial
planning may not be top of mind. However, now is an ideal time
to take advantage of tax savings strategies before ringing in 2019.
If you’re working, have you contributed all that you can to your
retirement accounts and/or retirement work plans? For 401(k)
and 403(b) accounts, the maximum contribution is now $18,500
per person if under age 50, or $24,500 if age 50 or older. Any
contributions (not ROTH contributions) made will lower your
taxable income. You may also contribute up to a maximum amount of $5,500 to a traditional or Roth IRA, and if 50 or older, another $1,000 (for a $6,500 max
contribution). Your adjusted gross income (AGI) and other factors will determine if such traditional IRA contributions are deductible. The ability to contribute to a Roth IRA is strictly governed by AGI.
Another important tool that can be used for those working and
planning for retirement is a Health Savings Account (HSA). If you
are covered by a High Deductible Health Plan (HDHP), not on
Medicare or covered by another health plan, and not able to be
claimed as a dependent on someone else’s tax return, you may
be able to use this strategy. It is inevitable that we will have
medical expenses, especially in retirement, and contributions
to an HSA are tax deductible (or excluded from income if an
employer is contributing for you). Withdrawals for qualified
medical expenses are also tax free. Individuals may contribute
up to $3,450, families up to $6,900, and 55+ can make a catchup
contribution of an additional $1,000. Talk to your planner to
understand the rules around this under-utilized strategy.
We see many retired individuals who need to take their Required
Minimum Distributions (RMDs) before the end of the year. If you
have not taken yours yet or have not completed taking the full
amount, you may direct your RMD to a qualified charity. Qualified
Charitable Distributions (QCDs) are not taxable, and using
QCDs partially or fully to satisfy your RMD reduces your
Adjusted Gross Income, which can be favorable for reducing
Medicare premiums and the taxability of Social Security, among
other benefits. From a tax perspective, this is the preferred
method for giving – especially when some or all of the RMD is
not needed.
Still in the mood for gifting? Gifting of appreciated property/
securities is still an option retained under the new TCJA legislation.
This is a favored tax-advantaged method of giving regardless
of whether or not a deduction is given, as neither the taxpayer
nor the charity
pays tax on the
unrealized capital
gain. The higher
the unrealized
gain, the better!
Note: timing of
this strategy is important – if approaching end-of-life, there is a
step up in basis that should be considered first.
If you have a taxable investment account and have realized capital
gains from selling securities at a profit, you may sell positions that
are at a loss to avoid being taxed on some or all of those gains.
Any losses over and above the amount of your capital gains
may be used to offset up to $3,000 of ordinary income ($1,500
for married person filing separately). Selling losing positions for
the tax benefit is commonly known as “tax loss harvesting” or
“harvesting your losses.” So, even though tax considerations
shouldn’t be the primary driver of your investing decisions,
there are steps you can take before the end of the year to
minimize any tax impacts.
If you’re working in New York State and have younger children, you
may want to consider adding to their NYS 529 Plan. These plans
allow you to contribute up to $15,000 a year ($30,000 if married
filing jointly) without triggering the need to file a gift tax return.
Up to $10,000 is deductible annually from NYS taxable income
for married couples filing jointly, and up to $5,000 annually for
single taxpayers. There is also an expanded use available for
these funds that now includes certain qualified expenses for
children in K-12 plus the normal higher education expenses.
These are just a few of the basics available to most people, you
may want to consider by December 31. Before implementing
any strategy, I always recommend working with a CERTIFIED
FINANCIAL PLANNER™ professional and your tax advisor to ensure that all
aspects of the plan are coordinated to meet your goals. If you
have any questions, our well qualified Wealth
Advisors would love to speak with you.
How CNB Can Help
If you would like to discuss in more detail, I am available to answer any questions you may have. Please call me today at (585) 419-0670, ext. 41958 or [email protected].
This material is provided for general information purposes only. Investments and insurance products are not FDIC insured, not bank deposits, not obligations of, or guaranteed by Canandaigua National Bank & Trust or any of its affiliates. Investments are subject to investment risks, including possible loss of principal amount invested. Past performance is not indicative of future investment results. Before making any investment decision, please consult your legal, tax or financial advisor. Investments and services may be offered through affiliate companies.
Tax information presented is not to be considered as tax advice and cannot be used for the purpose of avoiding tax penalties. Canandaigua National Bank & Trust does not provide tax, legal, or accounting advice. Please consult your personal tax advisor, attorney, or accountant for advice on these matters.