2018 Year End Money Moves

By November 9, 2018The Friday Brief

As the holidays and new year approach with alarming rapidity–but before you get swept up in parties and family gatherings completely–it’s a great time to take a look at your finances. 2018 still has some important planning opportunities, and getting ahead of 2019 could pay huge dividends, too.

With that in mind, here’s a quick list of seven things you might consider doing before 2018 draws to a close.

1. Revisit your 401(k) contributions: The IRS recently announced an increase to the annual contribution limit for 401(k), 403(b) and 457 plans. The current annual limit, effective through the end of 2018, is $18,500 for anyone under 50, but in 2019 you will have the option to contribute an extra $500, for a total of $19,000.
If you’re over age 50 and participate in one of the above retirement plans you will still benefit from the $6,000 catch-up provision that raises your annual contribution limit to $24,500 for 2018 and $25,000 for 2019.  Now is a good time to ensure that you’ve contributed the max for 2018 and that you’ll be set up to do so again in 2019.

2. Review your charitable giving strategy: If you’re charitably inclined and usually give cash directly to your charitable organization of choice it may make sense to consider one of the following two options:

Donate appreciated shares of stock instead of cash: If you donate stock that has increased in value since you bought it more than a year ago – and if you itemize deductions — you can take a charitable deduction for the stock’s fair market value on the day you give it away. And your favorite charity can turn around and sell those shares immediately and tax free.  This can be a great strategy if you own a stock that has appreciated in value and you’re ready to sell it or even just want to reduce your exposure but don’t want to pay taxes on the appreciation.  You can even give shares of a stock away and immediately use the cash you would have given to charity to buy back the same number of shares in the same stock!  Doing so means you’d potentially reduce the tax bill due when you sell your shares in the future.

Donate your Required Minimum Distribution (RMD) from a retirement account directly to charity: It’s called a Qualified Charitable Distribution or QDC. If you’re 70 ½ or older you may be able to transfer up to $100k from your IRA directly to charity. Why would you want to do this?  The gift counts as your Required Minimum Distribution for the year but it’s not included in your adjusted gross income. That way your gift could give you a tax break even if you don’t itemize your deductions -which has become more common with the recent tax law changes!  And, by lowering your adjusted gross income, you could potentially lower the taxable portion of your Social Security and increase the amount of medical expense deductions you can take just to name a few benefits.  There are some very specific rules that need to be followed so check with your CPA or one of us at Beacon first.

3. Take your annual Required Minimum Distribution (RMD): If you’re 70 1/2 or older and own a traditional IRA , 401(k) or 403(b), or if you’re the beneficiary of an inherited IRA, there’s a very good chance that you’ll need to take a required minimum distributions from your account by year end. You don’t want to ignore this because the penalty for failing to do so is a 50 percent tax on what should have been withdrawn.  The rules around this are pretty complex so when in doubt, ask.  We’re here to help.

4. Harvest some losses (or gains): Tax loss harvesting is the practice of selling a security in a taxable (non-retirement) account that has experienced a loss. By realizing, or “harvesting” a loss, you’re able to offset taxes on both realized taxable gains and ordinary income (up to $3,000.)  The sold security is replaced by a similar one, maintaining your optimal asset allocation and expected returns. Conversely, if you find yourself in an unusually low tax bracket this year, it could make sense to “harvest” some of the long-term gains on appreciated securities that you may own in a taxable account.  This strategy could allow you to realize some of your capital gains at a rate of 0%!

5. Make a contribution to a traditional, Roth or SEP IRA: Contributing to one of these can be a great and easy way to save for the future and improve your tax situation. Knowing which one is best for you, how much to contribute and how it might impact your tax bill is complex but definitely worth having a conversation about if you or your spouse have earned income (W2 or 1099) in 2018.  It sometimes makes sense to contribute to one even if you feel like you don’t have the cash flow this year.  You can contribute using money invested in a savings account or taxable brokerage account assuming that money is otherwise invested for the long haul.

6. Spend the dollars in your Flexible Spending Account (FSA): If you still have money set aside in a flexible spending account for health care expenses, see if you can order new glasses or schedule that dental work you’ve been putting off. Some companies offer a grace period into the spring or a $500 FSA carry-over from one year to the next but this isn’t very common. If your employer doesn’t offer these provisions, then you’ll lose any unused funds once we ring in the new year.

7. Contribute to your Health Savings Account (HSA): If you are enrolled in a high-deductible health insurance plan (HDHP), you may qualify for an HSA. HSA stands for Health Savings Account, and it’s a handy way to save for medical expenses and reduce your taxable income. That’s because the accounts get a triple tax benefit: The money you contribute reduces your taxable income. It grows tax-free. And withdrawals are tax-free as well, as long as the money is used for qualified health expenses. Each year, you decide how much to contribute to your HSA account, though you cannot exceed government-mandated maximums. In 2018, these limits are $3,450 for an individual and $6,900 for a family; adults over 55 can add up to $1,000 more.  Because of their tax advantages and because any unused dollars roll over to the next year, HSA’s can also be a great place to save for medical expenses that might occur during your retirement.  Click here to read more about the many benefits HSAs offer.

Perhaps you’ll find one or two (or all seven) of these handy. If you’re a Beacon client, rest assured we’re looking out for you; if not, let us know if you’d like someone to help vet these opportunities for you. We’re here if you need us.


Author Geoff Hall

After two decades of practicing wealth management, multiple bull and bear markets, an internet bubble, a financial crisis and everything else in between, I have come to understand certain truths. The stock market can be volatile and it’s best if you prepare ahead of time. The less you pay in taxes and expenses the more of your money you keep. Outside perspective is a very good thing. Having a good financial plan as your frame of reference goes a long way. Based on these truths, my value proposition is elegantly simple yet profoundly effective… I strive to listen to my clients like they are the only person in the world so that I can best understand what is most important to them. I work diligently to control the things that can be controlled in the investment process like taxes, expenses and market underperformance so my clients can keep more of their hard earned wealth. By creating and continuously monitoring a plan for each of my clients I ensure that they feel confident that they are on track to do more of the things that are most important to them. I offer my clients independent, unbiased advice in a language that they understand. My beautiful wife, Crystal, and I have a two year old son, Cooper, and we just welcomed our daughter, Rhodes, into the world. When I’m not spending time with them you might find me downtown serving at our church, pushing my limits at an F3 workout or having coffee with a friend in the Five Points area. I have been given the privilege of shepherding my family of clients through the ups and down of the markets and of life for that matter. And for that I am thankful.

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