Financial Planning 2020 – Playbook
The beginning of each new year presents a great opportunity to reflect about whether your Financial Plan is on track for the coming year. Setting “New Years Resolutions” with no actionable goal or next steps is just not a great plan for the new year or the new decade.
Recent tax law changes and the passage of the retirement SECURE Act, makes now an excellent time Financial Planning 2020 to see if you are on track to meet your short and long-term goals for 2020 and beyond.
Here are some important areas to consider before we get too far into 2020.
Tax Mitigation – Financial Planning 2020
- Make sure you are implementing tax reduction strategies such as maximizing your retirement plan contributions,
- HSA contributions,
- FSA distributions,
- ROTH conversions,
- tax-loss harvesting your portfolios,
- smart tax-efficient charitable contributions, and
- review your current year tax projection based on your income and deductions year to date and how that may be different from previous years.
- Review our year-end Financial Planning 2020 checklist.
Estate – Financial Planning 2020
- Examine a flowchart of your current estate plan to visualize what would happen to your assets and how the current estate tax law will impact you.
- Maximize the increased estate tax exemption (set to expire in 2026!)
- Be sure that your estate planning documents are up to date.
- In addition to your will,
- power of attorney,
- health care documents,
- trust agreements, and
- beneficiary designations
- coordinate your desired estate distribution strategies.
Significant life events such as marriage, divorce, or the death of a spouse makes estate planning review even more important.
Investment – Financial Planning 2020
- Market volatility can feel uncomfortable.
- Market declines are a natural part of investing and understanding your risk level is vital.
- Stress Test your portfolio quarterly to see how it would respond in the event of a recession.
- Review your Asset Allocation to reaffirm that your current investment allocation is aligned with your financial goals.
- Regular portfolio rebalancing and reviews will keep the appropriate amount of risk-balanced in your investment portfolio.
Cash Management – Financial Planning 2020
- Cover 2 years of living expenses
- Avoid forced selling of equities in a down market.
- Review expected distributions from any mutual funds.
- If you recently purchased a mutual fund (or have a fund with a holding-period loss or small gain), you can check with the fund company to see if there will be a large capital gain distribution that will be taxable.
- If you sell the fund before the distribution, you can avoid the tax hit.
TIP: These occur annually – typically in December.
Charitable Giving – Financial Planning 2020
- There are many ways to be tax efficient when making charitable gifts.
- For example, donating appreciated stock would allow for a full deduction of the value and avoid paying capital gains taxes.
- Maybe you own a high concentration of stock positions with a low-cost basis. These securities are excellent candidates for charitable contributions.
- Another great option is to make direct gifts to charities from your retirement accounts if you are over age 70 ½ is known as Qualified Charitable Distributions (QCD).
- Doing so does not add income to your return and it counts as part of your required minimum distributions (RMD) for the tax year.
- You may also want to consider bunching charitable deductions by deferring donations to next year or making your planned donations ahead of time.
- If the numbers are large, you may even consider a private foundation or donor-advised fund for your charitable giving.
- These contributions need to be locked-in by year-end to get a deduction.
- For more advanced charitable giving, consider a Charitable Remainder Trust to provide a stream of income while you’re alive, leaving the remainder to a charity of your choice.
Retirement – Financial Planning 2020
- When “work” becomes optional.
- Whether you expect a typical full-retirement or a career change,
- determine an appropriate balance between spending and saving.
- There are many options available for saving for retirement.
- Understand which option is best for you.
Spending – Financial Planning 2020
- Review your annual spending and plan for next year.
- Understanding your cash flow needs is an important aspect of determining if you have enough money to meet your goals.
- If you are retired, it is important to maintain a tax-efficient, safe and sustainable withdrawal strategy to cover all your spending needs.
- If you have not yet reached age 70 ½, it is good to ensure you’re making tax-efficient withdrawals.
- If you are over age 70 ½ make sure to take your required minimum distributions (RMD).
- Penalties are significant – up to 50%!
- Maximize income from Social Security and Pensions.
Risk Management – Financial Planning 2020
- Review all your insurance coverage.
- Catastrophic events like hurricanes serve as a powerful reminder to make sure your property and casualty insurance coverage are available when you need it.
- If you are in a Federal disaster area, there are additional steps to recover what you can and explore the tax treatment of casualty losses.
- Other areas of risk management that may need to be revisited include life, long-term care and/or disability insurance.
- There are both term and permanent options available for life insurance.
- Some life insurance policies can help you save tax-deferred for retirement.
Education Funding – Financial Planning 2020
Funding education costs for children or grandchildren takes a little planning.
- Increase in college costs has slowed lately, however, this is still a major expense for most families.
- It is important to know all the options available to save for education to determine the optimal strategy.
- Funding a 529 plan comes with tax benefits, so making contributions before the end of the year is key.
- With the added flexibility of funding k-12 years (set at a $10,000 limit), 529 accounts become even more advantageous.
- For those with kids in college, it is also important to understand the rules when it comes to taking 529 Plan withdrawals tax-free.
- Don’t forget to submit your reimbursements prior to year-end.
Elder Care – Financial Planning 2020
- There are many financial planning elements to consider as you age, and it is important to consider these things sooner rather than later.
- Planning for incapacity is critical.
- There are many issues to consider when caring for aging parents or other loved ones.
- Having a plan in place for who will handle your financial affairs should you suffer cognitive decline is also critical.
- Make sure your spouse and/or family understands your plans.
- Reduce family conflicts and having your wishes considered requires planning.
Business Strategy – Financial Planning 2020
- If you own a business, you should be paying close attention to your year-end planning.
- Congress is constantly making tax law changes that impact many businesses and the tax they or their owners pay.
- A new tax code section for businesses, 199A, gives business owners who are structured as an S Corp, Partnership, Single Member LLC or Sole Proprietor the benefit of deducting an additional 20% for the net income of their taxes.
- For many, this can be a huge saving.
- The rules are very complicated and require that you plan at year-end to maximize your potential deduction.
- The new tax law includes two new changes that limit the amount of interest you may be able to deduct and no longer allows net operating losses to be carried back to prior years.
- You can only carry them forward with a limit of what you can deduct in any year.
- If you are looking to start giving your employees more benefits and are considering setting up a qualified retirement plan, some options are required to be in place before the following calendar year depending on which plan is right for you.
- Whether it’s a 401K, SEP IRA, Defined Benefit Plan or Simple IRA plan, BayRock can help you determine which plan is right for your business.
