Smart End Of The Year Financial Tips

This is a repost of last year's financial tips, updated for 2019!

Can you believe the year is almost over? With just a few short months to tie up most financial loose ends, here are some year end financial tips you'll be sure you won't want to miss.

Check out the companion podcast (from 2018) over at the Hippocratic Hustle!

Be Sure To Max Out Tax Advantaged Retirement Accounts

… If that was one of your financial goals.

You may be surprised to learn that we no longer max out all of my available tax advantaged accounts as of this year. Our 2019 goals for tax advantaged retirement accounts were to max out our HSAs and Roth IRAs and get the free match from our employers.

Hopefully you've already set up your work retirement accounts to max out along the year (aka dollar cost averaging). Or better yet, you front loaded them and are done for the year! Here are the accounts you may want to double check:

Work retirement accounts

Work retirement accounts such as 401(k), 403(b), and 457(b) generally have a deadline of by your last paycheck of the year. It can also take 1-2 pay cycles for any changes you make to your contributions–so do this ASAP if you need to increase your contributions. Don't forget to reset this in January unless you want to front load the accounts.

Roth IRA

Don't forget to fund your Roth IRA! Most physicians will need to backdoor it. You do have until Tax Day in April 2020 to fund it, however, it is cleaner if you do the IRA contribution & conversion this calendar year. This is due to how you fill out Form 8606 with your taxes.

Here's the short version of how Form 8606 works: You report the contribution to the traditional IRA on the tax year (2019), but you report the conversion (from traditional IRA to Roth IRA) in the actual year you did it. So for example, if you wait till January 2020 to backdoor for tax year 2019, you'll have to report this transaction on Form 8606 in 2019 and 2020. Not a big deal, but you'll need to keep track of that or make sure your CPA does for you.

Solo-401(k)

Are you self employed or do you have a side hustle? There are two things to know:

You have until 1/15/20 to contribute your employee contributions.
Then, you have until tax day April for the employer contributions for the solo-401(k).

If you don't have a solo-401(k) but want to, you have until 12/31/19 to open one – so get on it!

SEP-IRA

If you're a procrastinator, then you'll need to open a SEP-IRA. You have until tax day extension in October 2020 to open and fund one for tax year 2019.

HSA

If you're lucky to have access to a Health Savings Account (HSA) and are using it as a Stealth IRA, you have until Tax Day in April 2020 to fund one. Most folks will fund one via paycheck through work. I self fund it and contributed to it in one lump sum at Lively. Don't forget to invest the money inside the HSA as well. Lively custodies with TD Ameritrade.

Take Advantage of Tax Loss Harvesting

Tax Loss Harvesting (TLH) is a way to capture losses in your taxable or regular brokerage account to reduce your tax burden. The current limit of losses you can claim on your tax return is $3,000. You can carry forward losses > $3,000 to use into future tax returns as well.

Speaking of investments, make sure you know when to rebalance your portfolio. I recommend doing this once a year and definitely not more than twice a year. Pick an annual date to do this.

Be Smart About Charitable Donations

The new Tax Law (as of 2018) makes it more difficult to itemize deductions since the standard deduction is much higher. Hopefully no one donates just for the tax write off. The best way to donate and get a tax break is to lump your donations every other year (or more) so that you are able to itemize deductions.

A great way to do this is to open and fund a Donor Advised Fund (DAF). Why? You take the tax write off the year you contribute to the fund, then you're free to donate to any charity you'd like without having to keep track and save receipts for tax day. You can also donate anonymously very easily via a DAF.

Use FSA Money

Don't forget to use up your Flexible Spending Account(s). Some plans will let you carry forward up to $500 to the following year. However, most of the plans are “use it or lose it.” Your plan can also offer a two and a half month grace period (March 15).

Bottom line – read the fine print of your FSA plan. The same applies for Dependent Care FSA plans. I wonder where the lost money goes – anyone know?

Start or Review Your Estate Planning

There is no end of year deadline for this per se … however this ends up being an non-urgent item on the to-do list for many people.

Create A Will

If you're reading this and you do not have a will – what are you waiting for? Perhaps you elected a legal plan through your employer and the deadline to use it or lose it is coming up. If you are married and/or have children, having a will is a must to elect a guardian in case of your early demise. Otherwise the state will pick for you.

Secure and Safely Share Account Access

Along these lines, if you or your partner passes, do you have access to his/her accounts, logins and passwords? First, you'll want to make sure you have Power Of Attorney. This is not valid upon death but many things can happen where you'll need access to accounts legally.

For password and secure digital document management I recommend a program like Lastpass. For most folks, the family plan will be appropriate. This allows the whole family to use Lastpass to manage passwords. Lastpass can also generate secure passwords (you're not using the same password for all your logins, right?).

You can also use it as a secure digital vault – I upload copies of important documents such as driver's licenses, passports, social security cards, life insurance policies and other insurance policies. I essentially use it as a digital death book.

For those that prefer the paper route for this, check out Mama Fish Save's ICE binder – In Case of Emergency. This is a templated PDF that guides you into documenting all the things you'll want your loved ones to have access to when you pass.