10 planning tips for starting 2019 right

January 14, 2019 5:50 PM

It’s never too late for your clients to start working on their personal finances -- but it’s never too early, either, and the earlier they start in, the longer they’ll benefit. With that in mind, a number of members of the American Institute of CPAs’ PFP Executive Committee and its Personal Financial Specialist, or PFS, Credential Committee shared a double-handful of tips and strategies to start 2019 off in great shape.

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1. New year, new plan

A blank slate and a fresh approach are important for PFP Executive Committee member Lisa Feartherngill, CPA/PFS. “One of my favorite tips is to begin the year with a fresh plan,” she explained. “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. Then, create the plan that will achieve the goals. It’s that simple, but you have to know where you are now in order to determine where you want to be.”

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2. Review 2018 spending while budgeting 2019

Knowing what a client spent last year is critical for planning what they’ll spend this year, according to Michael Landsberg, a CPA/PFS and member of the PFP Executive Committee. “Early January provides an ideal window for reviewing prior-year expenses and developing a reasonable budget for the current year,” he said. “Be sure to strip out one-time non-recurring expenses (i.e., emergency room visit or housing repairs) and plot a course for 2019 spending that includes a buffer for future unforeseen expenses.”

3. Review automatic payment subscriptions and renewals

Set-it-and-forget payments can add up major drains on an individual’s funds, and PFP Executive Committee member Brooke Salvini, CPA/PFS, recommends finding and patching those leaks. “The start of the new year is the perfect time to review all the various automatic payments and subscriptions set up in the past. 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,” she said. “It’s easy for money to slip away by losing track of all the small payments scheduled through automatic payment methods. A review of these payments can be part of your general new year clean-up, which feels so good and refreshing!”

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4. Update Form W-4 for withholding

A surprising large number of taxpayers haven’t done this, despite aggressive public information campaigns by the Internal Revenue Service. “2018 saw major changes to individual taxes, and the IRS substantially revised the withholding tables in early 2018,” said CPA/PFS and PFP Executive Committee member Julie Welch. “Now that 2019 has begun, make sure you have checked your withholding to see if you need more or less withheld in 2019. Use Form W-4 and the related instructions to estimate how much withholding you need. Also, you can use the IRS’s withholding calculator at https://www.irs.gov/payments/tax-withholding or contact your CPA or financial advisor for guidance.”

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5. Make an early calculation of 2018 taxes

Withholding isn’t the only area affected by the Tax Cuts and Jobs Act, and there are major ramifications for all taxpayers to consider, according to David Stolz, a CPA/PFS and member of the PFS Credential Committee. “The new tax bill has likely made significant changes to your tax opportunities. Don’t wait until April to understand what those opportunities are for you,” he advised. “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. The sooner you know your opportunities, the more impact they will have on your finances.”

6. Revisit workplace retirement plan contributions

“The beginning of the year is a great time to review your workplace retirement plan contributions,” noted CPA/PFS Robert Westley, a member of PFS Credential Committee. “Employees should 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 percent raise in salary and increased your contribution rate by 2 percent your net paycheck and savings will both be higher.”

7. Make a 2018 IRA and HSA contribution (if you haven't already)

2018 may be over by the calendar, but not when it comes to tax-advantaged savings, according to David Oransky, a CPA/PFS and member of the PFP Executive Committee. “You have until April 15, 2019, to make eligible IRA and HSA contributions for 2018,” he explained. “The combined traditional and Roth IRA contribution limit is the lesser of $5,500 or your taxable compensation. If you're filing a joint return but don't have any taxable compensation of your own, you may still be able to contribute under the spousal IRA provisions. For an HSA, the contribution limit is $6,900 if you have a family high-deductible health plan or $3,450 for self-only HDHP coverage.”

8. Don’t wait -- contribute to your IRA now

Some taxpayers may want to look into a unique angle on Roth and IRA contributions, as outlined by PFP Executive Committee member David Desmarais, CPA/PFS: “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. So, you can make a nondeductible IRA contribution and immediately roll it over into a Roth. I just got back from my local investment management branch and made my wife’s and my $6,000 IRA contributions (up from $5,500 last year). As soon as the check clears, I will roll the funds into our Roth IRAs (called a ‘backdoor Roth contribution’).”

“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 explained. “This doesn’t work if you have other traditional IRAs that have untaxed earnings (whether it be from unrealized gains or prior deductible IRA contributions), because you have to aggregate all of the IRAs when determining the amount of the taxable conversion.”

9. Take a look at your current allocation

Michael Landsberg, CPA/PFS, a member of the PFP Executive Committee, suggests that taxpayers make sure that their portfolio is still allocated according to their financial plan. “With increased market volatility during 2018, your various asset classes may have drifted out of balance,” he said. “Use the beginning of January to analyze any material shifts that may have occurred due to 2018 performance. Diversification is important for managing portfolio risk, so rebalancing may be necessary.”

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10. Make annual exclusion gifts to heirs now

Early gifting may make the gifts even more valuable, according to CPA/PFS Robert Westley, a member of the PFS Credential Committee. “Consider making gifts to beneficiaries at the beginning of the year. For those looking to reduce their estate tax exposure, individuals can give up to $15,000 to an unlimited number of beneficiaries per year without utilizing their lifetime estate tax exclusion amount or paying a gift tax,” he said. “Completing these gifts at the beginning of the year allows your beneficiaries to receive a few additional months of potential appreciation.”