A Financial To-do List for the New Year

As we enter not only a new year but a new decade, now is a good time to think about financial tasks and priorities for the year ahead. Here are seven items Kendall Capital recommends you add to your financial to-do list for 2020:

1. Contribute up to the maximum in tax-advantaged accounts. Planning ahead now can make it easier for you to max out your retirement and health savings accounts in 2020. This year, you and your spouse can each contribute up to $6,000 to a traditional IRA, or $7,000 if you’re 50 years of age or over. In addition, you can each contribute up to $19,500 to a 401(k), or $26,000 if you’re 50 years of age or over, and $3,550 to a health savings account (HSA), or $3,650 if you’re 55 years of age or over.

Suppose you and your spouse are both over 50 years old, which means you can contribute a total of $14,000 to your IRAs next year. In order to max out your contributions, you can contribute a combined $1,166 to the accounts each month. Make sure the contributions are split evenly between the IRAs, with $583 per month going into each one.

2. Look into the benefits of Roth IRA conversions. Roth IRA contributions grow tax-free, instead of just tax deferred like with traditional IRAs, and withdrawals are usually tax-free if they’re made after you turn 59½ years old. Also, there are no required minimum distributions (RMDs) with Roth IRAs at age 70½ like with traditional IRAs. And you can continue making Roth IRA contributions throughout your lifetime, regardless of your age.

But there’s one catch: If you make too much money, you can’t open and contribute to a Roth IRA. However, you can still enjoy these tax benefits by converting a traditional, SEP or SIMPLE IRA to a Roth IRA. Keep in mind that you’ll have to pay income taxes on the value of the IRA at the time of the conversion. If your IRA is large, this could result in a big lump sum payment that’s due to the IRS when the conversion is made.

3. Make charitable donations strategically. One strategy is to donate appreciated securities, instead of cash, to a donor advised fund (DAF). If you’ve held the securities for at least one year, you can avoid paying capital gains taxes on the appreciated property. Meanwhile, the charity will receive the full fair market value of the securities when they’re donated, and you will receive a tax deduction for this amount.

With tax reform’s increase of the standard deduction to $12,400 for singles and $24,800 for married couples filing jointly in 2020, many people will no longer itemize deductions on their tax return and thus won’t receive a deduction for charitable donations. One way around this is to bunch several years’ worth of charitable donations into one year so your itemized deductions exceed the standard deduction for that year.

4. Take advantage of qualified charitable distributions (QCDs). If you’re over age 70½ and you own a traditional, rollover or inherited IRA, QCDs can ease the tax bite of required minimum distributions (RMDs) you must take each year. Since QCDs aren’t considered taxable income, no taxes are due on the distributions. In 2020 you can use a QCD to donate up to $100,000 to charity.

5. Examine your asset allocation. The allocation of assets in your investment portfolio among stocks, bonds and cash equivalents can shift over time as equity markets fluctuate. The beginning of the year is a good time to review your asset allocation and rebalance your portfolio as necessary.

Let’s say that your ideal asset allocation is 60 percent stocks, 30 percent bonds and 10 percent cash. Due to last year’s booming stock market, stocks now account for 70 percent of your portfolio, bonds account for 25 percent and cash accounts for just 5 percent. To rebalance your portfolio, you would sell some of your stocks and invest these funds in bonds and cash to bring your asset allocation back in line.

6. Re-examine your will. As your life circumstances change, you may need to make changes to your last will and testament to reflect them. For example, if you have gotten married or divorced, had a child or acquired significant assets or property, you should adjust your will so these changes are taken into account when your estate is settled after you die.

Most importantly, if you don’t have a last will and testament, make plans now to create one. Depending on the size and complexity of your estate, you may be able to do-it-yourself using a website like LegalZoom, or you might be better off hiring an attorney to create a will for you.

7. Schedule a meeting with your financial advisor. During this meeting, you can discuss most of the items on your financial to-do list. This will help you formulate a financial and investment game plan for 2020 and beyond.

Don’t delay. Plan to sit down this month with your spouse and create your own financial to-do list for the new year.