Spring Forward, Don’t Fall Back on Tax Planning

By Kate Zimmerman

Spring is known best for a few things; winter giving way to warm weather, losing an hour of sleep to daylight savings time and gathering up your W-2 or 1099’s to give to your accountant or enter into a popular tax prep website to see if you get a tax return or have to mail out a check on Tax Day. Many of us have no idea what is in store for us, but instead cross our fingers and hope it’s better than last year. What many of us don’t always do well is actually plan out how to be smart about taxes BEFORE the next New Year’s Eve comes around. So whether you are retired, currently saving to hopefully retire someday or just got your first job- here are some things you need to know when it comes to tax planning.

It’s April! That means that the IRS has given you procrastinators one last chance to save money in your IRA for last year until the 15th. Pretty nice, huh? Maybe you got a bonus in January, or didn’t spend as much as you thought you would for Christmas. Either way, your future self will thank you for taking some extra money and putting it aside for later while saving paying taxes on it now. Are you a business owner? Look into whether opening a SEP IRA, SIMPLE or a 401k will help you save some dough.

Even though the birds are chirping and flowers blooming, we haven’t quite forgotten how the stock market on Christmas Eve (well, most of fall actually) gave us coal in our “stock”ings. If you held on and didn’t sell, you are a smart cookie. But what if you are over 70 ½ and needed to take your Required Minimum Distribution (RMD) by the end of the year, not the best time to want to sell anything. Make a plan with your financial planner on how you will take those funds out of your IRA without waiting until the last second. You just might be forced to sell when the market is not favorable and not taking that distribution on time can cost you a penalty of 50%. Knowing how much you have to take and where it will come from, can save you a headache.

Putting money into your retirement plan at work is fantastic. Not only will you have those funds for your golden years but there are other benefits as well. For instance, this is good to make your W-2 look even smaller at both tax time (pre-tax contributions) and when filing your FAFSA for all of you college parents out there. Even better if you are maxing out your contributions for the year- Remember though that if you get a bonus and hit your maximum contribution early, that you might be losing out on your full match from your employer. Try planning to ensure you spread your contributions throughout the year and all paychecks to get the most from your benefits.

If you are a high income earning family, there are special concerns that you should know. Long term capital gains and qualifying dividends can be taxed as high as 20% if your taxable income is over a certain amount. Does your advisor know where you stand before making those trades in your investment accounts? If you need to factor in for Alternative Minimum Tax (AMT), planning ahead can help you avoid getting hurt in years forward. With certain legislative changes, how you plan for taxes may look very different than years past. Standard deductions and itemization rules have changed, which means potentially big difference in your annual tax experience if you are doing things the same as always. Talk with a tax planner to see what steps you can take to not get stuck with an unexpected tax bill.

No matter what stage of life you are in, financial planning ahead of time can save you money, stress and headaches.

Kate Zimmerman is a financial planner and President of RockPoint Wealth Management. She lives right here in Smithfield with her husband Greg and 4 children while helping people manage their financial lives for over 15 years.


Cambridge does not provide tax advice. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time

Securities offered through Registered Representatives of Cambridge Investment Research Inc., a broker-dealer, member FINRA/SIPC. Advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser. RockPoint Wealth Management and Cambridge are not affiliated.

Appendix: Contribution Limits: Traditional & Roth IRA 2018 $5,500 ($6,500 age 50 and older). 2019 $6,000 ($7,000 age 50 and older). Talk to your tax preparer to see if you qualify for a Roth IRA. SEP IRA (up to 25% of eligible compensation, up to) 2018 limit of $55,000 2019 $56,000. SIMPLE IRA 2018 $12,500. 2019 $13,000 401k & 403b. 2018 $18,500 ($24,500 age 50 and older) 2019 $19,000 ($25,000 50 and older) RMD (required minimum distribution) based on IRS tables and prior December 31st balance.