Tax moves for procrastinators

Steve Merrell |

December is upon us and that means 2019 is almost in the history books. Can you believe it? It seems like I just put the Christmas decorations away and here I am hauling the boxes out of storage again. However, even with year-end rapidly approaching, you still have time to make some last-minute tax moves. Here are a few end-of-year tax saving ideas you might want to consider.

If your employer offers a 401(k) plan, you still have time to maximize your contributions. This is one of the easiest tax moves available and, for most people, it is one of the biggest. If you already participate in a 401(k) plan, look at your year-to-date contributions to make sure you are hitting the maximum. The contribution limit increased to $19,000 in 2019, up from $18,500 last year. If you didn’t give your employer instructions to raise your payroll deduction this year, you may still be contributing at last year’s level. Also, the contribution limit for participants 50 years of age or older is $25,000. If you turned 50 this year, make sure to take advantage of the higher contribution limit. Contributions must be made by December 31, so you need to move quickly.

If you are younger than 70 ½, you might also benefit from contributing to a traditional IRA. The 2019 IRA contribution limit increased to $6,000 from $5,500 last year. If you are older than 50, your limit increased to $7,000. Note that the tax deduction is reduced or eliminated if you or your spouse are covered by an employer-sponsored plan and your income is above certain levels, so check with your tax professional before making your contribution. IRA contributions for 2019 must be in place before April 15, 2020.

If you earn too much to make a tax-deductible IRA contribution, you might still benefit from doing a back-door Roth conversion. A back-door conversion involves making a non-tax-deductible contribution to a traditional IRA and immediately converting it to a Roth. There are some serious consequences for misapplying this strategy, so you should discuss it with a financial advisor before doing it.

Health Savings Accounts are another easy tax benefit. If you have HSA-compatible health insurance, you can make tax-deductible contributions of $3,500 for single coverage and $7,000 for family coverage. If you don’t use the HSA funds this year, that’s okay because they grow tax-free just like an IRA. In fact, HSAs are better than IRAs because the money also comes out tax free as long as it is used for qualified medical expenses. The deadline to open and fund an HSA for 2019 is April 15, 2020.

Taxpayers who are charitably minded may benefit from grouping several years’ worth of donations into a single year in a process known as bundling or bunching. For example, let’s suppose you budget to donate $5,000 per year to charitable causes. If your total deductions are not large enough to warrant itemizing them on your tax return, you effectively lose the tax benefit of your $5,000 contribution. However, if you were to “bundle” several years’ worth of donations into a single contribution this year, your deduction would be large enough to itemize. You get the additional tax benefit this year and you still get the full benefit of the higher standard deduction in future years.

A good way to bundle charitable contributions is with a donor-advised fund. Be aware that a contribution to a donor-advised fund is a completed gift. Once made, the money belongs to the fund’s sponsoring charity. However, donor-advised funds allow you to direct future giving out of the fund to the charities of your choice. If you want to know more about donor-advised funds and how they work, including their limitations, I encourage you to contact the Community Foundation for Monterey County. They do a terrific job.



Steven C. Merrell  MBA, CFP®, AIF® is a Partner at Monterey Private Wealth, Inc., an independent wealth management firm in Monterey.   He welcomes questions you may have concerning investments, taxes, retirement, or estate planning.  Send your questions to: Steve Merrell, 2340 Garden Road Suite 202, Monterey, CA  93940 or email them to