7 Year-End Planning Tips from a Wealth Planner

The holidays are upon us, so that must mean it’s time for year-end income tax planning, right? In the past, I would have said yes, but that changed 12 months ago when the Tax Cuts and Jobs Act (TCJA) of 2017 was passed.

TCJA limits state and local income tax deductions to $10,000, eliminates Other Itemized Deductions, removes exemptions and lowers tax rates, among other changes, resulting in far fewer people itemizing. AARP estimates the number of people itemizing on their returns may drop from about 30 percent to about 10 percent in 2018.

In other words, traditional year-end tax planning has become simply year-end planning.

So instead of giving you another list of year-end tax planning ideas, I present you with seven things my wife and I look at when we do our year-end planning.

1. Complete Your 2018 Tax Estimate

The tax software was out on November 20, just before Thanksgiving, so I used the holiday weekend to review any year-end actions which may be necessary or desired, so my 2018 income tax estimate is complete. This is not as important for income tax filers who will not itemize their deductions.

2. Review Retirement Plan Contributions

I review retirement plan contributions for increased December contributions that may allow me to squeeze a few more dollars into the plan. I also review next year’s contribution limits and adjust payroll contributions to set my target retirement plan and HSA contribution for next year.

Lastly, I allocate the retirement plan contributions between Roth and Traditional 401(k) accounts. This has a direct impact on next year’s income tax liability.

3. Plan for Big Costs

My wife and I discuss any needed or discretionary home improvements or automobile replacements for the next 12 to 24 months, including estimated cost and timing. We also review the asset levels allocated toward funding anticipated improvements with allowances for cost overruns and funding for any major purchases.

4. Tally Up Your Equity

We tally the change in our cash accounts, retirement plan contributions and mortgage principal reduction to see how much equity we “saved” toward retirement. This excludes financial market changes in the value of our investments, which we track separately. We control the saving amount, but we have less control over investment performance.

5. Review Life Insurance

We review our life insurance policies for cash-value accumulation, looming term policy expiration dates, long-term care premium increases and adequacy of coverage. We also take steps to implement any changes which may be necessary to take advantage of age and health (insurance tends to get more expensive as you get older, and your health rarely gets better with time).

6. Review Health Insurance

After we’ve looked over our life insurance, we review our health insurance during open enrollment periods for adequacy of coverage and appropriate changes in coverage.

7. Answer the Big Question

From a big picture standpoint, we answer the question, “Are we on track toward our retirement goal?”

I have one advantage in going through the year-end planning process: when I have the conversation, I am having it with myself and my wife, so I don’t have to schedule an appointment.

The advantage to our clients is that we think about these things every day and are prepared to have the conversation with you whenever you’re ready.

Call your wealth advisor today to schedule your year-end planning conversation and start 2019 with your 2018 year-end planning complete.