The end of the year is a great time to do a review of your finances. Things that tend to change at the beginning of each year are contribution limits and taxes. If retirement planning and financial stewardship is a priority to you, then doing an annual review is vital.
10 ways to save on taxes and expenses in 2019
The points below may help you save tax dollars in the coming year, and better prepare for retirement. As everyone’s financial situation is different, each point on the list isn’t going to apply to everyone but I am confident you can find a least a couple of ideas that you can apply.
1. Change your TSP contribution – Limits for 2019 are increased to $19,000, up from $18,500 in 2018. If you are contributing the maximum to TSP, you will want to calculate the dollar amount to contribute each pay period so you don’t overfund it before year end.
Are you getting a raise in 2019? If so, congratulations! Consider putting part of that raise into your TSP.
2. Sign up for the catch-up contribution – Employees that turn 50 or older in 2019 are eligible for the catch-up contribution. The catch-up contribution allows you to put an additional $6,000 in TSP, and it is something you must sign up for every year.
3. Contribute to your Roth IRA – The contribution limit for IRAs and Roth IRAs has been increased by $500 to $6,000 for 2019. There is also a catch-up provision for IRAs of $1,000. In the year that you turn 50, and subsequent years you can put an additional $1,000 in your IRA or Roth IRA.
4. Sign up for a Flexible Spending Account (FSA) – Federal employees can sign up for an FSA, but before doing so make sure you understand how they work. An FSA is an easy way to save tax dollars in a year that you expect to have out of pocket medical expenses. The limit has been increased to $2,700 for 2019.
5. Change to a high deductible health plan (HDHP) – A high deductible health plan qualifies participants to open a Health Savings Account (HSA). I have previously written about the benefits of HSAs. Although you’ll have to incur more medical expenses before you meet the deductible, the tax benefits are hard to beat!
6. Harvest gains– This is something that can be done on accounts that are not tax sheltered (not your TSP, IRA, Roth IRA, etc.). Harvesting gains is something you may want to do if you are in the 12% tax bracket. Individuals in the 12% tax bracket have a long-term gain tax of 0%! If you can sell appreciated positions without paying any taxes it may be beneficial to do so.
Harvesting gains can be a fruitful strategy for those who are in higher tax brackets as well. Do you hold any concentrated positions? Typically any stock, bond, or investment comprising more than 5% of your total portfolio is good to evaluate. The reason is that as time goes on and the position grows, you risk having too much of your wealth bound to one particular holding. It may be time to consider pairing down some positions that have run up. Here’s where you’ll need to conduct a thorough analysis of your holdings and consult with your tax and/or financial advisor.
7. Perform tax loss harvesting – As in #6, this is also something that can be done with taxable accounts. If you have losses in any of your current positions, you can sell those positions and get up to a $3,000 deduction on your income taxes for 2018. Any losses in excess of $3,000 can be carried over to future years. This article covers some of the benefits of having a taxable account.
8. Consider a Roth conversion –Tax brackets are now lower than they have been in previous years, therefore it may be beneficial to look at doing a Roth conversion this year. Roth conversions are typically done when you want to pay tax on IRA contributions now as opposed to deferring tax until funds are withdrawn in retirement. Depending on your situation, there may be many benefits to doing Roth conversions, some of which are discussed here.
9. Conduct a household expense audit – This is something I recommend every family do once a year. Looking at all of your bills at least once a year can help you find excess costs and make sure your values align with your spending. Are you paying for a magazine subscription that you no longer read? Is your cable bill too high? Do you spend an excessive amount of funds dining out? Find out where the money drains are happening and redirect funds to more fulfilling causes in 2019.
10. Charitable giving – The end of the year tends to be a time when charitable giving increases. In the past, most people received tax deductions for their donations, but with the tax law changes this year that may not be the case. If you will be taking the standard deduction and therefore missing out on a deduction for donations, you may want to look into bunching your deductions or setting up a donor advised fund.
The last (and in my humble opinion, best idea) is to get a financial plan together. Regardless of where you are at in your life, I have found that it helps people to both relax and focus on their priorities if they have a plan in place.
I hope this list will help you improve your financial house for 2019. If you find yourself wanting to put a plan together and would like help from a qualified fiduciary that doesn’t sell products, you are welcome to schedule an introductory call.
Brad Bobb, CFP® is the owner of Bobb Financial Inc, and an expert in retirement planning for federal employees.