Before you ring in the new year, make sure you’re financially ready. Do these 4 quick financial readiness tips before December 31! It’s so easy to get wrapped up in the holidays, but don’t forget to get your finances in order. Start off the year on the right financial foot!
Quick Financial Readiness Tips
1. Adjust your retirement contributions. The IRS recently announced the 401(k) contribution limit is increased to $19,500 for 2020 and the catch-up limit is increased to $6,500. If you are over 50 years old, you can now contribute a total of $26,000. The contribution limit increase applies to 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan.
Adjust your contribution amounts to take advantage of these new limits. Don’t forget to check your HSA (Health Savings Account) contribution amount too. Cost of living adjustments were made to the limits for HSAs and high-deductible health plans (HDHPs) and if you are over 55, the HSA catch up contribution limit is $1,000.
2. Use up your FSA (Flexible Spending Account). Don’t forget these accounts are “use it or loose it”. Generally FSAs can be used to pay for healthcare costs like copayments, deductibles, some drugs, and other health care costs. Can you purchase some of your medical supplies before the end of the year? Diabetes, first aid and home health care items may be on the list of eligible items.
But all FSAs aren’t the same – be sure to check with your employer/ administrator to confirm if something’s eligible before making a purchase. I need to check if new glasses are covered. 👓
Some plans have a grace period when you can still use the money during the first couple of months of the next year. Others offer an option to roll over money to the next year. Again, check with your employer or plan administrator.
3. Donate before the end of the year. If you’re itemizing deductions on your 2019 taxes, then consider making a contribution to a non-profit organization that is a 501(c)(3) public charity or private foundation. This is also a good opportunity to go through your closets for items to donate and de-clutter at the same time! Don’t forget to get a tax receipt. I usually make a list of the items I’m donating as I’m packing the boxes and then just staple the list to the tax receipt.
4. Take Your Required Minimum Distributions. If you are age 70½ , work with your tax professional or financial adviser to understand the requirements for annual required minimum distributions (RMD) from certain retirement accounts. The deadline for taking RMDs is December 31 and there can be tax penalties if the distributions are not taken on time. The amount changes each year, so check with your financial adviser or tax professional.
“Beginning when you turn 70½, IRS regulations generally require you to withdraw a minimum amount of money each year from your tax-deferred retirement accounts, such as traditional IRAs and 401(k) plans. If you don’t take enough, you may pay a 50% IRS penalty on the amount not taken.* This is why it’s important that you understand how RMDs work, and the timing of distributions.”Fidelty.com; Required Minimum Distributions RMD Deadline
Get Financially Ready for 2020!
Take a few minutes now to check these 4 financial readiness “must do” items off your to do list and start off the year on the right financial foot! This will get you in great shape to work on your retirement readiness goals and get financially ready for 2020!
I wish you and your loved ones a Very Happy New Year!
Note: The content on AnOrganizedRetirement.com is for informational and educational purposes only and should not be construed as professional financial advice. Should you need such advice, consult a licensed financial or tax adviser.