Setting up your own plan can be challenging, as there are a number of IRS rules you must follow. For example, certain types of plans must be established by a certain time within the year. So talk to a retirement plan professional to understand your options and obligations.
5. Take the bull by the horns
If you itemize and have a taxable investment account, you may want to use the multi-year bull market to your advantage. US stock indexes are up over 20% this year, which could make it a great time to gift appreciated securities from a taxable investment account because there could be potential tax advantages for the donor. That being said, the tax aspects of charitable donations can be complicated, so it’s always wise to consult with a tax professional.
6. Embrace the losers
Despite stock indexes rising in 2019, you may still have a clunker in your account. The good news is that you can sell investments with losses in taxable accounts, which may offer a tax advantage.
If you have more capital losses than gains, you can deduct up to $3,000 per year (or $1,500 if married and filing a separate return) against ordinary income; if you have more than $3,000 in losses, you can carry over that amount to future years.
7. Take Required Minimum Distributions (RMD)
Generally, you’ll need to withdraw money from retirement accounts (excluding Roth IRAs) once you turn 70½. Failure to do may result in a 50% penalty on the amount you should have taken.
If you have multiple IRAs, you only need to take one RMD based on your age and the total value of the accounts. BUT, if you also have a 401(k) or 403(b), you need to take the RMD from each account individually. Be sure to visit the IRS for specifics.
If you don’t need your RMD, you might consider a Qualified Charitable Distribution (QCD), which allows you to direct some or all of your RMD to the charity of your choice. You don’t get to count a QCD towards your charitable deduction, but generally, the distribution isn’t taxed.
8. Consider a Roth conversion
You may want to consider converting a Traditional IRA into a Roth IRA if one of these scenarios apply to you: your income was lower in 2019 than previous years; you believe that tax rates are likely to rise in the future; or you want to limit the impact of RMDs in the future because it could negatively impact future taxation of Social Security benefits or increase Medicare costs.
Be careful to check out IRS tax brackets, because the amount of money you convert will add to your taxable income. Once you pay the tax due on the conversion amount, the money will grow tax-free in the Roth.
9. Get creative with using your FSA
If you have a Flexible Spending Account, you’re probably familiar that these are use-it-or-lose-it accounts. It’s worth noting that some companies have a year-end deadline to use the funds, and some may allow you to carry over up to $500 into the next plan year. But between your busy holiday schedule and the availability of your doctor, it may seem like a challenge to figure out how you’re going to use your extra FSA money, if you have it.
Now is a great time to stock up on items like certain over-the-counter meds, vitamins, sunscreen, baby essentials and more. You can use your FSA dollars to cover many of these expenses.