December 2018 Newsletter to Clients

Enjoy this month’s newsletter that features important TD Ameritrade year-end deadlines, and some year-end tax tips…

Holiday Open House: Moneywatch Advisors will host a Holiday Open House on Thursday, December 13 from 4-7 at our office at 121 Walton Avenue. All are welcome – we hope to see you.

Tax Planning: We want to make you aware of several approaching year-end activities with potential tax implications for 2018 including the dates which action must be taken in order for TD Ameritrade to meet the December 31 deadline.

Deadline for Required Minimum Distributions (RMDs): Clients who are 70½ or older or those who have BENEFICIARY IRAs must take an RMD from their IRA and/or their Qualified Retirement Plans for the 2018 tax year. All RMDs must be withdrawn by December 31, 2018, with the exception of RMDs for clients who turned or will turn 70½ during this calendar year; these clients may defer their first distribution until April 1, 2019.

Deadline for Roth IRA Conversions: Clients must submit a Roth Conversion Form in good order by December 21, 2018. Forms received after that date will be processed by TD Ameritrade on a best-efforts basis.

Charitable Gift Deadlines:

• December 18, 2018 - Gift requests of mutual funds
• December 21, 2018 - Gift requests of cash via check and/or federal funds wire
• December 21, 2018 - Gift requests between accounts custodied at TD Ameritrade
• December 21, 2018 - Gift requests of equities and fixed-income products to external accounts

Max out your retirement account contributions: For those still working, the best way to lower your tax liability is to increase your contributions to your 403(b) or 401(k). Every dollar contributed will decrease your tax liability by that same amount.

• The maximum allowed for 2018 for 401(k)s or 403(b)s is:
  • $18,500 for those under 50 – this does not include your employer’s contributions;
  • $18,500 plus $6,000 for those 50 and over;
  • UK faculty and staff can also contribute those same amounts to a 457(b) plan – that’s a great benefit;
• For IRAs, those under 50 can contribute $5500 and those 50 and over may contribute $6500 – those contributions can also reduce your tax liability.
• As the rules for who qualifies to make tax-deductible contributions to IRAs are complicated, please call us for guidance.
• If your income is too high to make tax-deductible contributions to an IRA, consider contributing to a Roth IRA instead. While you won’t receive a current year tax deduction, your contribution will grow tax-free so when you take a withdrawal after the age of 59 ½, you will pay no income tax or capital gains tax. There are income limits here too so, again, call us for help.

New federal tax law: Last year about this time Congress passed a major overhaul to the federal tax code. While it did a lot, here is what you need to keep in mind:

• The new standard deduction has risen to $12,000 for singles and $24,000 for married couples.
• The law caps the deduction for state and local taxes at $10,000.
• The total of your itemized deductions – state and local taxes, home mortgage interest and charitable contributions are the broad categories – must exceed $12,000 for singles or $24,000 for married couples in order to itemize.
• These changes mean a lot of us won’t itemize deductions anymore.

Charitable contributions: Unless your deduction for state and local taxes plus home mortgage interest and charitable donations exceeds a total of $24,000, you likely won’t receive a tax deduction for gifts to your favorite charities.

• Tip: If your itemized deductions are close to that new standard deduction threshold, consider making some charitable contributions this year that you are planning for 2019. This will give you a bigger tax break for 2018 and you can just take the standard deduction in 2019.
• You may also gift appreciated stock or mutual funds from your taxable accounts directly to a charitable organization. You may not receive a deduction, but you will avoid paying any capital gains taxes. See deadlines in this newsletter.

We are thankful for the opportunity to work with each of you and are looking forward to 2019. Bob Bova, our founder, is back in Lexington on a permanent basis beginning January 1 and looks forward to seeing new and familiar faces. 

Thank you for your continuing confidence.

Past performance is no guarantee of future results. The opinions expressed are those of Moneywatch Advisors, Inc. and are no guarantee of the future performance of any particular fund. This information is for educational purposes only and is not intended as investment advice. Please consult your financial advisor for more detailed information or for advice regarding your individual situation.