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Finish 2018 Strong & Start 2019 Stronger

Well hello 2019! Back in 2016, I wrote a popular blog post titled “Finish 2016 Strong & Start 2017 Stronger,” and I couldn’t think a better time to start the newest refreshed version. For our first blog post of 2019, we are going to cover a few last minute tax items you can still take advantage of before filing your 2018 taxes; some fun items such as additional contributions to your IRA, Roth IRA, and HSA. You may also have some “bonus” time to use up those leftover FSA funds before they expire (aka your money will vanish!). We will then shift our focus to 2019, and cover some of the new increases for this year, the how and why of updating your W4 and last, but not least, why you should file your taxes as soon as possible. 

Finish 2018 Strong

While the 2018 tax year officially came to a close on December 31, you still have some time to finalize a few important tax items in early 2019.

Maximize your IRA & Roth IRA

You have the ability to make a 2018 contribution up until you file your taxes. The key thing to remember is that you won’t receive any official tax documents to provide to your accountant. So, if you make this later contribution, make sure you tell your accountant! The other important tip is to be sure you mark it as a 2018 contribution, most systems will default to current year “2019” if you do not tell it otherwise. 

2018 limit is $5,500 or $6,500 if you are age 50+
2019 limit is $6,000 or $7,000 if you are age 50+

*Don’t forget about the income limits for Roth contributions and the tax deductibility for IRA contributions. If you are having trouble here, check out this backdoor Roth IRA

Maximize your Health Savings Account (HSA)

One of my favorite accounts, the health savings account (HSA), also allows contributions up until you file your taxes. A few important points, if you are used to making contributions automatically via your paychecks, you will need to make this lump sum addition directly with your HSA vendor. Contact them and ask them the easiest way to add a lump sum for 2018. Again, you won't get official tax documents so let your accountant know that you recently made a lump sum HSA contribution for 2018. Be sure you mark it as a 2018 contribution, most systems will default to current year “2019” if you do not tell it otherwise. HSA funds do NOT expire like FSA funds, so you can add money without the fear of them expiring. 

As a friendly reminder, you must have a high deductible health plan that qualifies for a health savings account (HSA) to take advantage of this opportunity. 

2018 limit is $6,900 (family) or $3,450 (individual) (Age 55+ you can save an additional $1,000)
2019 limit is $7,000 (family) or $3,500 (individual) (Age 55+ you can save an additional $1,000)

Spend Unused Flexible Spending Accounts (FSA) Funds

While this is not a tax benefit, you don’t want to let your FSA funds expire. Literally, the money will disappear! There are two types of FSAs, dependent care and health care. They both have similar rules, but each employer can add their own guidelines.  The main take away is that some plans offer a “grace period” of up to 2 ½ months to use FSA money. Please, check with your employer to confirm your plan’s deadlines. If you have money left over, use it! If not, the money is gone. Some plans do allow a $500 rollover/carryover from health care FSAs, but once again, you need to confirm with your employer. 

If you find yourself “force spending” each year, then you should adjust your FSA savings at the next open enrollment. There are also some qualifying events that allow you to adjust mid-year. 

If you find yourself “force spending” those FSA funds, here is a list of items to stock up on or take advantage of

2018 FSA Limits: Dependent Care $5,000 (total household!) and Health Care $2,650 (each)
2019 FSA Limits: Dependent Care $5,000 (total household!) and Health Care $2,700 (each)

Start 2019 Stronger 

This new year brought a lot of increased savings amounts to the most commonly used retirement account, your workplace retirement account. We will also cover why you should adjust your W4 and file your 2018 taxes sooner than later. 

Update Your Workplace Retirement Savings

Whether you are maximizing your retirement account each year or not, this is a great time to increase your long-term savings. For those of you maximizing your account each year (great job!), but you also probably have to make a small adjustment to max your account for 2019. 

The new 2019 limits for every major workplace retirement account (401k, 403b, 457b, TSP) have increased! The new limits are $19,000 and $25,000 (If you are age 50+). Friendly reminder, if you are fortunate to have both a 401k/403b and 457b, the 457b is a separate plan limit, meaning you can max out both your 401k/403b AND your 457b. 

If your plan allows for after-tax contributions, the total of all contributions (you + employer) is now increased to $56,000 for 2019. 

Update your W4

If you are getting large refunds each year, stop it! Update your W4 to keep more money in your pocket and not Uncle Sam’s. My goal has always been a refund of $500 to $1,000, still large enough to get happy but not large enough to think about the opportunity cost. So, if you are getting refunds of over $1,000 year after year, you should adjust your W4 and keep that money in your pocket. 

If you have an accountant, they should be able to tell you exactly what you should have listed for your W4. You also have the ability to list a specific dollar amount. For example, you could list “2 dependents, +$100/per paycheck.”

A Guide to Filling Out Your W-4 Form

Your 2018 tax return will be the first year of the new tax code, update your W4 accordingly. 

File your taxes early

The main reasons being identity theft and fraud. If a criminal has access to your social security number, they have just about everything they need to file your tax return. Now, it would be nice if the friendly criminal paid your tax bill, but unfortunately, they are there to steal your refund check (another good reason to adjust your W4!). Hopefully, this never happens to you, but if it does follow these steps

Here are some wild facts & tips from LifeLock:

  • 969,000; Number of IRS-identified tax returns claiming around $6.5 billion in potentially fraudulent refunds
  • 100,000; Number of taxpayer records compromised when the IRS was breached in 2015
  • 183; Number of screening filters that the IRS implemented to prevent fraud in 2016
  • 400% increase in tax-related phishing and malware attacks in the 2016 filing season

Happy New Year and make 2019 your BEST year yet!

This information is for general purposes only. This information is not intended to be a substitute for specific professional financial, tax advice or legal advice, as individual circumstances vary. Please see a financial professional in regards to your own individual situation.