It's Time for New Year's Resolutions!
It’s the New Year! Time for collards and black-eyed peas, parades and football, and of course, resolutions. Greeting the new year with resolutions for improving one’s life is a practice that dates to the ancient Babylonians. It’s estimated that nearly 65% of us will make some sort of resolution, although by February almost 80% will have failed. While many resolutions revolve around health and lifestyle changes, over 75% of those who make resolutions include at least one that deals with financial matters. (For some fun facts, see Wallethub’s New Year's trivia infographic. )
We’d like to suggest some tax-related actions for you to consider:
1) Save for retirement.
Traditional or Roth? 401(k) or IRA? We understand … it’s complicated! However, taking a little time now to learn to use these plans effectively can really pay off later.
Does your employer offer a retirement plan? Do they match contributions? Maybe it’s time to visit HR to make sure you’re up on all the options you have at work. (Forbes has a quick overview of retirement plans here.) Need help evaluating your choices? While we urge you to seek investment advice from qualified financial advisors, we can help you understand the tax implications of the options available to you.
Already investing in a retirement plan? For 2019, the contribution limit for IRAs has increased to $6000 (with an additional $1000 “catch up” available to those over age 50). Limits for 401(k) and similar plans have increased to $19,000 (with an additional $6000 “catch up”). Also, the income limits for the Saver’s Credit have gone up to $32,000 single/ $64,000 Married Filing Jointly.
2) Maximize HSAs and Flex Spending Accounts
If your employer offers these accounts, they can be a great way to improve your finances. However, it’s important to know the rules to make sure you are maximizing your benefits.
HSA contribution limits have risen to $3500 (single) and $7000 (family). Remember, funds in an HSA can be withdrawn tax-free if used for qualified medical expenses. Unused funds can remain in the account to be used in future years.
Flex spending accounts are commonly available for medical and daycare expenses. Although employers are allowed to set a lower limit, the IRS sets maximum contribution limits. For 2019, flex medical accounts are capped at $2700. This is a per person limit; each spouse in a married couple may contribute up to the maximum allowed. Daycare expense accounts remain capped at $5000 for married couples filing jointly and single parents. Taxpayers using the married filing separately status are limited to $2500. Flex accounts are “use it or lose it” … any unused funds at the plan’s year-end are forfeited.
3) Utilize a tax professional
Former IRS commissioner Douglas Shulman once famously said, “I find the tax code complex so I use a preparer.” With the implementation of the Tax Cuts and Jobs Act, the biggest overhaul of the tax code in decades, your 2018 tax return will contain many changes from previous years. There’s never been a better time to let a professional make sure your return maximizes your bottom line.
Whatever resolutions you choose, we hope you have a wonderful 2019. Happy New Year!