To help clients position themselves for the year ahead, members of the American Institute of CPAs (AICPA) shared planning tips to help Americans improve their financial situation.
1. Start the new year with a new plan. “First you have to update your balance sheet, so you know your starting point. Then set goals — reduce debt or increase investments or something else — and attach a dollar amount,” Lisa Featherngill, a member of the AICPA PFP Executive Committee, suggests.
Then, a plan can be created to achieve those goals.
2. Review 2018 spending in conjunction with 2019 budgeting. The new year is a good time to review prior-year expenses and develop a reasonable budget for the current year, according to Michael Landsberg, a member of the AICPA PFP Executive Committee. He suggests stripping out one-time nonrecurring expenses — such as emergency room visit or housing repairs — and then plot a course for 2019 spending that includes a buffer for future unforeseen expenses.
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3. Review automatic payment subscriptions and renewals. Now is the time to review all the various automatic payments and subscriptions previously set up, Brooke Salvini, a member of the AICPA PFP Executive Committee, says.
“Some expenses, such as entertainment streaming services, a gym membership or an old magazine subscription may no longer fit into your budget, lifestyle, or new year priorities,” Salvini said in a statement.
4. Update your Form W-4 for withholding. As Julie Welch pointed out, “2018 saw major changes to individual taxes. The IRS substantially revised the withholding tables in early 2018.”
Now that 2019 has begun, Welch, a member of the AICPA PFP Executive Committee, suggested that individuals check their withholding to see if they need more or less withheld in 2019.
5. Make an early calculation of 2018 taxes. The new tax bill has likely made significant changes to individuals’ taxes, according to David Stolz, a member of the AICPA PFS Credential Committee.
“Don’t wait until April to understand what those opportunities are for you,” Stolz says. “You may need to adjust your withholding, change your charitable giving strategy, take advantage of new tax brackets or depreciation rules among many other strategies.”
6. Revisit workplace retirement plan contributions. Robert Westley, AICPA PFS Credential Committee member, suggests that employees strive to increase their retirement plan contribution percentage from 2018.
“Pairing the deferral increase with a salary raise is a painless way to boost retirement savings. For example, if you received a 4% raise in salary and increased your contribution rate by 2%, your net paycheck and savings will both be higher,” Westley says.
7. Make an IRA and HSA contribution for 2018 (if you haven’t already). David Oransky, a member of the AICPA PFP Executive Committee, points out that individuals have until April 15 to make eligible IRA and HSA contributions for 2018. The combined traditional and Roth IRA contribution limit is the lesser of $5,500 or an individual’s taxable compensation.
If the individual is filing a joint return but doesn’t have any taxable compensation of his or her own, that individual may still be able to contribute under the spousal IRA provisions, Oransky notes.
Meanwhile, for an HSA, the contribution limit is $6,900 if the individual has a family high-deductible health plan, or $3,450 for self-only HDHP coverage, according to Oransky. 8. Contribute to your IRA now. David Desmarais, member of the AICPA PFP Executive Committee, has some tips on how individuals should contribute to their IRA.
“For married couples with modified adjusted gross income over $203,000, you cannot make direct Roth contributions. However, there are no income limitations on doing a Roth conversion or nondeductible IRA contribution,” he says.
Individuals can make a nondeductible IRA contribution and immediately roll it over into a Roth, according to Desmarais.
“The reason why you roll it over immediately is if there are no earnings in the IRA before it is rolled into a Roth, there is no income to pick up on the conversion,” he explains. However, he noted that this doesn’t work if the individual has other traditional IRAs that have untaxed earnings — whether it be from unrealized gains or prior deductible IRA contributions.