Financial and Tax Planning in 2019

As we embrace yet another New Year it’s a good time to take stock of financial priorities. Here are my thoughts.

For starters, in the short term make sure you have a sufficient amount of liquid assets to cover emergencies and unexpected expenses like home repairs. Some experts recommend that three months’ worth of income be set aside in an emergency fund.

Long term, here are three primary considerations.

  1. First is saving for retirement. If you participate in an employer’s 401(k) plan you should contribute at least as much as your employer will match. If they match 3%, you should contribute 3%, otherwise you are leaving money on the table. But you should really try to contribute as much as you can, up to a maximum of $18,500 per year in 2019, all deferred pre-tax from your paycheck.
  2. Second is saving for children’s education. A Section 529 plan is a great way to do this. Contributions are not tax-deductible for federal income tax purposes, although certain states such as Ohio provide a limited tax deduction, but earnings growth within the 529 is not taxable and all withdrawals for qualifying education expenses are tax free.
  3. Third is considering health concerns as we age. Long-term care insurance benefits have been a blessing to many people I know. They can alleviate financial pressure on the family because they cover the cost of elder care in a nursing facility or at home (read the fine print). Before planning for Medicaid eligibility in order to conserve family assets consider a long-term care policy. The younger you are when you enroll the lower the premiums will be.

Other Priorities

Assemble a team of financial advisers with your best interests in mind. It should include:

  • your CPA/accountant
  • your attorney
  • your investment adviser
  • perhaps your insurance professional and banker

Your attorney, if qualified, can advise on estate planning issues. I’m sure you’ve read that most estates today are exempt from actual estate tax, but there are many other considerations. Protecting assets within a trust will not necessarily provide tax savings but it will save on future costs of probating estate assets outside of the trust. Designating children’s guardians, and successor trustees, are equally important. Assemble all relevant documents – wills, trust agreements, life insurance policies, safe deposit box location/key/contents, etc. – in one place, and let your responsible party (trustee/estate administrator/son or daughter) know where to find them.

Your investment adviser can provide tax-planning information regarding current-year income, such as capital gains and IRA distributions, which is helpful to your CPA when doing year-end tax planning. You should understand how your investment advisers are paid: commission, fee and commission, and fee-only are three entirely different protocols. Make sure you clarify with them how you are paying for their services.

Create a personal financial plan to quantify your goals. Once you put them in writing they become real, but you have to hold yourself accountable to them. Review them no less than once a year.

Your CPA should be the hub of the spokes of your team, the quarterback coordinating the input of other advisers – legal, investment, insurance, banking, etc. S/he will serve as the coordinator of the entire team effort to accomplish your goals and bring on additional professional resources as necessary. Tax considerations are the common denominator.

These thoughts are just the very tip of the iceberg. We can help you navigate the places below the surface.

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