Five Questions to Help You Assess and Optimize Your Fiscal Health for 2020

Thomas Moyer, CFP®
Notepad with checklist on table

It may be hard to believe, but 2019 is coming to a close. With just a few weeks left in the year, now is a great time to look back on the past 12 months, assess where you are today, and start planning for the future – particularly when it comes to your fiscal health. From your investment portfolio, to retirement plan nuances, to tax considerations, there are a number of areas to consider as you plan for 2020 and beyond.

Not sure where to start? Ask yourself these five questions to get a better sense of your current financial position and next steps:

1. Does your current investment portfolio properly map to your short- and long-term goals?

The market is constantly changing, as are your goals and personal circumstances. That’s why it’s important to periodically revisit your investment portfolio in relation to where you are today. Look back on the year and note any positive or negative changes, then rebalance your portfolio as necessary to ensure you’re diversified appropriately with the proper level of risk to support your evolving goals.

2. Are you maximizing your retirement contributions?

In order to live comfortably post-retirement, you need to be saving today. Fortunately, many retirement plans offer a variety of options to help you boost your savings. An employer match program, for example, is one of the best and easiest ways to save more. Are you contributing enough to get the max match? If not, why? It’s free money! Plus, the more you contribute, the more current income tax you get to defer while you build your retirement nest egg.

If you’re 50 or over, don’t forget about catch-up contributions – a provision that lets you contribute more than the standard contribution limit (up to $6,000 for 401k, 403b, or employer-sponsored retirement plans), as your retirement draws near. Your company’s benefits coordinator and/or financial advisor can advise you on the next steps.

3. If you’re 70 ½ or older, have you started withdrawing from your retirement account(s)?

You’ve spent years putting away money in your tax-deferred retirement account, and you have a nice nest egg set aside. But there’s a catch—your money can’t sit there untouched indefinitely. At some point, the IRS will want to collect taxes on it. When you turn 70 ½, you’re required by law to make required minimum distributions (RMDs), which is IRS-speak for the minimum dollar amount you’re required to take from your retirement plan that will be taxed as ordinary income. If you don’t, you’ll face steep penalties of up to 50% of the amount required for annual withdrawal.

As for the specific dollar amount you’re required to take, your IRA plan’s custodian will provide written notification with those details. But keep in mind, if you have more than one account, you’ll receive separate notifications for each—and it’s on you to keep track of them. To simplify, consider consolidating your multiple IRA accounts. Or simply set a reminder for yourself to stay on top of these accounts to ensure you make the required withdrawal(s) on all accounts before the December 31st deadline.

Note also that charitable donations can be counted toward your RMD for the year—and they’re excluded from your taxable income. Qualified donations must be made as a direct transfer from your retirement account and cannot exceed $100,000 for the year. More on charitable contributions later.

4. Did you incur capital losses this year?

While no one enjoys the losses associated with under-performing investments, you can use it to your advantage on your tax return. If you paid more for an investment than what it’s worth today, those losses can be used to offset your capital gains and be deducted from your ordinary income (up to $3,000) to lower your tax liability.

5. Have you considered charitable contributions?

Want to bring your taxable income down while supporting a worthy cause? Consider donating a portion of any appreciated securities (e.g., stock, bonds, mutual funds) to charity. You have until year-end to make the transfer to an organization of your choosing. You may even be able to transfer capital gains liability to further decrease your tax liability. For more about charitable giving, read here.

Consult a professional

The above questions are intended to get you thinking about some of the most common financial matters that are often overlooked as the year comes to a close. For more comprehensive help maximizing the return on your investments, talk to a financial advisor. But don’t wait. Get your financial affairs in order now so that you can hit the ground running in 2020.

Note: While MACRO Consulting Group does not offer tax advice, we can recommend you to a tax professional who can help with your tax-related concerns.