Now that the calendar has turned from April to May there will be in effect a “Tax Time Groundhog Day” on July 15th, which is the new 2019 Federal (and most States*) filing deadline for 2019 taxes.
A number of people reading this note may already have signed and filed their 2019 tax returns^ in order to turn the page and move on to 2020 spending, budgeting and saving. However, if you are in the camp that is stretching out your 2019 filing until the July 15th date, then consider a few last-minute items:
As the year turned from 2019 to 2020, there stealthily rolled in several of the most sweeping reforms to retirement and tax legislation in a decade or so (outside of the 2017 Tax Cuts and Jobs Act, or TCJA). The recent changes apply to IRA, 401k and other retirement savings accounts. If any of these apply to you then please read on:
Turning 70½ this or next year
Own a business with or proposing a 401k plan
Working for a small company and do not have access to a 401k plan
Need an early distribution for reasons of qualified birth or adoption
BIG TOPIC! ESG is in the news more and more and has made its way into the world of investing. You may already have seen ESG offered in your 401k or 403b plan!
What is ESG? It stands for: Environmental, Social and Governance. Also called “sustainable investing,” the ESG category uses its three principal criteria to guide investment decisions. Funds in the category currently hold approximately $12 trillion of assets in the U.S. representing nearly 26% of the professionally managed assets as of 2017.* The obvious audience for ESG is Millennials (those born between 1981 and 1996, and aged 23 to 38 in 2019). The “millennial generation” has been known to prefer investing if “their investments [are] doing social good”* according to a survey.
The beginning of October means we are in the 4th Quarter… and the countdown begins to year-end. The following are excerpts from the Year-End Tax Planning Checklist.* Several of these items, if addressed now, could make a big difference to your 2019 tax filing AND add to your savings.
More on the topic of 401k saving: Can there be an “optimal amount” to have in a traditional 401k? At the very least, adjustments can be made to get close-to-optimal. And timing wise with the calendar approaching mid-year there is ample time (unless you have already maxed out your 401k) to make meaningful adjustments to your 2019 401k elections and start the optimizing process.
This topic is especially important for those who take saving seriously and who have at least $400,000 TODAY in a 401k or IRA Rollover accounts combined with a 401k account. (For those with less, these concepts still matter but with less urgency.)
First: How old are you?
Age matters because TIME is one of the biggest determinants of how much a 401k balance can potentially grow.
If you are younger than 40, these concepts could affect you A LOT as the power of compounding can kick in over multiple decades (this does not mean trading; rather saving, allocating and allowing compounding to do its work).
If you are older than 60 and nearer to retirement or selling a business, these concepts matter greatly but the solutions will be slightly different.
If you are in your 50’s, a combination of strategies can work – and keep in mind the “catch up” that allows you to save more.
As we roll full steam into the New Year 2019 it helps to be aware of a handful of changes related to taxes and tax-deductible contributions to 401k plans, IRAs and the like.
Important to recognize (when in a calm state of mind) is that with last year’s introduction of one of the most sweeping tax law changes in decades, filing for tax year 2018 may contain both pain, in terms of lost SALT deductions, and valuable lessons for how to proceed in tax year 2019. In the meantime, consider the following.*