EP 152 | Your End of Year Wealth Building Checklist

Welcome to episode 152 of The Retirement Years on Profit Boss® Radio! In this episode, I’m going to walk you through my end of year wealth building checklist – everything you need to do between now and December 31st to save literally thousands of dollars on your next tax bill. 

Right now, there are tons of money saving opportunities available to you that you might not know about, but they all expire at the end of this year. Though it may seem a little overwhelming at first, by being diligent and following my wealth building checklist, you can bulletproof your tax and financial situation – and even save more than you did if you stayed up all night (or got up way too early) to get a great deal on Black Friday. 

So, tune in to this episode of Profit Boss® Radio, marshal your resources, and get this done before January 1st. Your future self will thank you!

Here’s what you’ll find out in this week’s episode of Profit Boss® Radio

  • The five key areas of financial planning you need to handle.
  • Why market corrections aren’t necessarily a bad thing and how they can actually lead to higher returns.
  • Strategies you can use to invest successfully when markets are volatile.
  • How tax gain harvesting can help you capture gains in a lower tax bracket if you see your income increasing soon and need to sell an investment.
  • How tax loss harvesting can help you take advantage of a down market and offset losses on your investments.
  • How much you stand to lose when you don’t max out your IRA contributions.
  • The benefits of having balances in Roth IRAs as opposed to traditional IRAs. 
  • The best way to gift appreciated stocks or investments without paying a 45% gift tax.

End of Year Wealth Building Checklist

  • #1: Tax Harvesting Gains and Losses: 
    • Consider harvesting gains if you need to sell an investment in the next several years and foresee your income going up. This allows you to capture some of the gains in a lower tax bracket.  
    • Use losses to write off against gains, or bank your losses and carry them forward.
  • #2: Retirement Plan Funding
    • Retirement plan funding decreases your taxable income, which literally takes money out of Uncle Sam’s pocket and puts it back in yours. Make a big effort to max out your retirement plan contributions every year–don’t leave money on the table!
    • Max out your 401(k), 403(b), or 457 contributions for the year.
    • Max out your IRA, Roth IRA, or SIMPLE IRA contributions for the year. 
    • Pro Tip: SEP IRA contributions are calculated after year-end and you can actually make IRA and Roth contributions up until the time you file your tax return next year, but 401(k), 403(b) and 457 contributions must be made by 12/31/19.
  • #3: Gifting
    • Gifting allows you to make a difference and contribute to the people and organizations that mean the most to you, and in many cases also allows you to decrease your taxable income.
    • Give financial gifts to charities or people in lower tax brackets in the form of appreciated stock. They get to sell them tax-free (or low tax) and you can avoid paying high capital gains! Win-win. 
    • Gift up to $15,000 to any individual tax-free, or fund a 529 account for education savings. All 529 account contributions are considered gifts!
    • If you give a taxable gift, avoid a 45% tax by using part of your lifetime gifting exemption of $11.4 million.

Resources and Related Profit Boss® Content

Call for Listener Stories

Hey Profit Boss® Radio listeners! If you reach a financial goal you’re proud of, tell me about it! I will continue to share listener win stories throughout 2019. Remember, the Profit Boss® community is here to support you and that includes celebrating with you when you accomplish something incredible. 

  • If you crush a specific financial goal, I want to hear from you.
  • If you’re thankful for something that has happened in your financial life or career, I want to hear from you.
  • If you are making big financial or career plans, I want to hear from you!

Your financial success is possible and so many of you are already making that a reality! So, don’t keep your wins to yourself! Share them with me so that I can air them throughout the year on Profit Boss® Radio.

Email your audio clip to [email protected]. And we’ll be in touch if we plan to air your story. Thanks, ladies!


And let’s not forget that this show is powered by you and your stories and questions. Every month I’ll be doing an #AskHilary episode where I answer listener financial questions.

  • So, what’s that top of mind money question that’s been pinging around in your brain?
  • Where have you been stopped?
  • What have you been arguing with your spouse or significant other about?
  • What tip or tool aren’t you sure about?
  • Do you have questions about saving? Spending? Budgeting? Investing?

Pick up your mobile phone right now. Yes, right now. And open your voice recorder app. Yep, go ahead and open that app and record yourself asking me that question. Just say your name, first name only is okay, and then what city you’re from, and then ask away.

Anything you want to ask. And once you’re done recording, export that beautiful little recording and email it to [email protected]. I can’t wait to hear your questions!

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Your End of Year Wealth Building Checklist

Welcome to episode 152, Your End of Year Wealth Building Checklist. Last week we talked about systems for a healthy living and healthy aging and I think I was pretty honest with you in saying that’s not necessarily in the area of life that I’ve mastered. I’m good at it, but not great. Although I do have a few systems that are working for me and I shared those but, in that episode, I had plenty of questions for Courtney Townley, our guest. That topic was, like I said, a little out of the norm for what we’ve covered here on The Retirement Years on Profit Boss Radio, but your health is critical to your happiness. So, I hope you got some good lessons from that interview.


And now we’re going to get back to my area of expertise which is, of course, partnering with you to create your financial freedom. That means you’re free and you get to author your life. That means you are free from the past and that you see when it comes to money, anything is possible for you. And honestly, when your cup is full that you are finding ways to give back and foster the well-being and health and happiness of the communities you are a part of. That may sound like a lot to get committed to. Don’t worry. Here we are, here I am supporting you with the inspiration, wisdom, and frankly, the actionable day-to-day tips to get you there. 


We have to take care of each other, right? I take care of you in the ways that I do. You take care of yourself and your people. We take care of ourselves getting to thrive, and that is what it’s all about. And as if you didn’t have enough to do by the end of the year, happy holidays by the way, here I am giving you even more action items to accomplish. I don’t know what your holiday celebration is. I will have almost 30 people in my home for Christmas dinner. And so, we’ve started putting up the decorations. It’s really fun to get out the trees and all the things that I think all the pretty lights and the angels and the ornaments. And I think Harland is old enough this year that she’s finally going to start building memories of Christmas. I don’t think she remembers anything before now. And, you know, I’m thinking about menu planning and all the things that need to get done, gift buying and getting Harland something to wear and you know how it is. So, yeah, there’s a lot left to do this month and you have some financial action items as well.


It is important. Most people I know will go to the ends of the earth for a discount sale. I mean, come on, be honest. How many of you stayed up late or missed sleep to get a deal on Black Friday? Bulletproofing your tax and financial situation is just as important because the dollars you can save are just as real. And following this wealth building checklist could literally save you thousands on your tax bill. So, stay tuned and pay attention. Here’s why it’s critical to pay attention now before the end of 2019. There are lots of tax-saving opportunities that literally expire for you at the end of every year. January 1 is just too late. That bell cannot be un-rung so you’ve got to marshal those resources and be diligent about following this wealth building checklist before the end of the year. Your future self will thank you. Now, I know that some of you listening to this show don’t want to do this stuff yourself. You either need to do it for yourself or get an advisor to do it for and with you, in partnership with you. It’s important. 


First, just a reminder that the five key areas of your financial planning that need to be handled are, one, preservation of your nest egg. You don’t want to lose what you’ve worked hard to build. Two, retirement planning. Once you’ve saved those resources, how are you going to use them? Where will you live? How will you manage health and health care expenses? How much money can you pull from your nest egg every year to spend on things like travel and fun and Montblanc pens? That was a little funny and be pretty darn sure that you won’t overspend. How will you manage your required minimum distributions from retirement accounts? Should you have a mortgage later in life? There are a lot of choices and decisions and strategies that go into retirement planning. Number three is investments. What investment philosophy is going to carry you through the 30, possibly 40 or more years of your retirement? Your financial life is way, way too important to gamble with and we all know someone or multiple someone’s or maybe it’s you, who in the past, lost everything because they picked the wrong investment. So, we need to be really confident about what we’re doing in this area. 


Number four is tax planning. The taxman wants your money and the IRS has the legal right to go into your bank account and take your hard-earned funds without your permission. I have seen that happen. Guess what, it doesn’t tend to make people happy especially now with so much spending happening at the federal level and many of the Democratic presidential hopefuls talking about increasingly taxing the rich. And since it takes time to build up wealth, the older you are, the more likely you will qualify to them as rich. You’ve got to have a tax minimization strategy in place. Number five, and the final area of your personal finances that really need to be handled in order for you to achieve and maintain financial freedom is estate planning. How are we going to make sure your wishes are abided by if you can’t speak for yourself anymore, and that your legacy is left to your heirs and your community in the way that you want that to happen? 


I wanted to begin today with a little synopsis of the year. It’s been a fairly volatile investing year. Some would say it’s been a volatile year in the “market,” and remember that when most people talk about the markets, they’re actually talking about either the Dow Jones which is just 30 American large companies or the S&P 500, which is 500 American large companies. But there are something like 630,000 publicly traded companies around the world now. In other words, when most people use the term, the markets, they’re not talking about anything close to the actual market. My clients have more than 12,000 stocks in their portfolios so I don’t actually recommend you go try to buy 630,000 companies but this is just an example of something for you to keep in mind. We’re a pretty American-biased people, unfortunately, so you have to understand what people are talking about when they use certain terms. 


So, let’s talk about the S&P 500 because, honestly, at this point, most people own either an S&P 500 index fund or they own a more expensive fund that unfortunately mimics the S&P simply because most active managers have a lot of style, drift, and end up owning those companies. The S&P had a big dip at the end of 2018 but it did recover and then we saw another dip in June and yet another in the July August timeframe. And what you need to know about those dips is that they’re a normal part of investing. They’re expected. So, since 1950, the S&P has had 37 separate declines of at least 10%. Considering that there have been over 69 years since the beginning of 1950, this works out to a correction on average every 1.87 years.

And despite what the national financial news media would have you believe, those corrections or dips they’re actually valuable. It’s your ability and willingness to put up with the dips that earns you higher returns that you could get in like a CD, which is paying under 2% right now. So, assuming you’ve got a good investment philosophy working for you and you stayed invested through the dips, pat yourself on the back. 


Some strategies you can consider in volatile markets. Honestly, most of my clients close their eyes to it because they trust our investment methodology and they just don’t want to worry about it. You can try to keep things in perspective and definitely avoid making emotional decisions. That includes making investment decisions based on your predictions of the future. That’s a very bad idea. Be aware of media magnification, which I talked about a lot here. Double-check that your investments are appropriate for your risk tolerance and time horizon. Ultimately, make sure that you stay focused on your goals over being focused on fear or concerns about the future. Also, of course, I recommend you consult with your financial advisor to stay on track with your goals. So, that’s the end of my list of strategies you can consider in volatile markets. Now, we’re going to talk a little bit about rebalancing. 


Some of your investments have no doubt been growing faster than others. Now may be a good time to rebalance your investments so that your overall allocation is appropriate for you. Think of this like the formulation of your prescription medicine. Obviously, it’s intuitive to you. The percentages are important, right? It matters how much of what goes in there. It’s the same in investing and we’re doing plenty of this rebalancing on behalf of clients now. If you have money in a retirement account, that rebalancing action that buys and sells, they have no tax consequence so you can do that without worrying about your tax bill. We’re going to talk more later about what to do in accounts that are taxable. Your key end of your tax planning opportunities exists under three main subtopics. First, tax harvesting both gains and losses. Second, retirement plan funding, and third is gifting. 


So, let’s talk about each of them. Tax gain harvesting is selling assets with long term capital gains in 2019. If you’re able to take advantage of lower tax brackets now, you can repurchase the same or similar assets and then sell those investments later when you would have sold them otherwise. This allows you to capture some of the gains in a lower tax bracket if your income in future years is going to go up. You should primarily consider gain harvesting if your timeline is short. If your timeline is long, the impact on the net account balance from paying the tax is too large because it compounds over time. In other words, if you pay a 30% tax bill in 2019 and cost you – let’s say it’s $100,000 sale and you pay $30,000 in capital gains taxes. Well, that $30,000 if you had left it invested for 20 or 30 years could have turned into $200,000 because of compounding. So, that’s why you’re doing tax gain harvesting if your timeline is short, but probably not if your timeline is long. 


Basically, if you know you need to sell an investment in, say the next three years, and you also know that your income and therefore tax bracket is going up, consider harvesting gains now. If you happen to be in the zero percent long-term capital gains bracket this year because your income is very low, and unfortunately, given there are 50 states in the union, I simply cannot help you with your state tax level, but I can say that at the federal level, if you have an income of $39,375, for the year or less, you qualify for 0% capital gains tax. You would need to check with your individual state tax rates to see what the state tax would be for you.


Now, let’s talk about tax-loss harvesting. Basically, it’s a way to take advantage of down markets. Let’s say you bought stock in a Coca-Cola company at $100 and today it’s down to $75. So, you have a $25 loss per share. You might not be ready to give up on the company, but it’s smart to go ahead and harvest those losses. You can either use losses to write off against gains this year or you can bank those losses and carry them forward. You can bank all of your losses, but unfortunately, you can only write them off against gains in future years to the tune of $3,000 per year. So, if you have $100,000 in losses and no gains to offset them in the year you harvest them, it would take you 34 years to use them all up using them at the rate of $3,000 a year. Makes sense? Tax-loss harvesting is still a very smart and very savvy thing to do and it’s also, obviously, really complex. 


A quick tip here, beware of the wash-sale rule. Remember earlier when I said you might have $25 of losses on Coca-Cola company stock? Well, you can’t just sell Coke on Tuesday and repurchase it on Wednesday. That would negate your strategy. According To the IRS, it would become a wash sale. You can buy Pepsi company stock instead. You have to hold on to that for 31 days, and then sell and repurchase Coca-Cola so you’re dominating that soda market. This strategy comes more into play when you’re buying and selling mutual funds and ETFs, by the way, because individual company stocks are subject to so much company-specific effects. 


So, that’s tax-loss harvesting. Now, let’s talk about retirement plan funding. Basically, this is use it or lose it at midnight on December 31 and it’s free money, so don’t mess around. Max out your 401(k), 403(b), or 457 retirement account in 2019 at $19,000 for the year. Incidentally, that goes up to $19,520 in 2020. If you’re over age 50 and making catch up contributions at $6,000 to that $19,000 for a total of 25K. The catch-up contribution in 2020 goes up to $6,500, making the total potential contribution in 2020 $26,000. IRA and Roth IRA contributions maxed out at $6,000 with an additional $1,000 catch up for those in their sixth decade of life or later, that’s age 50 or older. And simple IRAs allow $13,000 in contributions and additional $3,000 in catch up. Here is why it’s so important that you max these numbers out. Again, each year, you have the ability to contribute a maximum number of dollars. Let’s say instead of contributing $19,000 in 2019, you only manage to put in $10,000. So, $9,000 you could have put in but you didn’t. So, what does that mean on your tax bill? Well, it’s $9,000 that you’re going to get taxed on in income, instead of being able to deduct it from your taxable income. 


So, now your taxable income is $9,000 higher. And assuming you pay approximately 30% combined federal and state income tax, you cost yourself $3,000. In other words, you disappeared $3,000 that could have been in your account but now Uncle Sam takes it. Now, let’s say you’re 35 years old, and you have 30 years to retirement. Well, it’s not pie in the sky that that $3,000 that should have been in your 401(k) could have turned into $25,000 or $30,000. That’s compound returns and that’s why it’s so important that you max out your ability to contribute to these accounts every year. It is free money. If you think your tax rates are going up in the future or you just want to diversify account types, which is probably a good idea since tax rates fluctuate, you can consider a Roth IRA conversion or you take IRA balances and convert them to a Roth. You have to be prepared to pay ordinary income tax on the entire converted amount, though. 


So, think about it. You put money into a traditional IRA and it went in there without paying any taxes on it. You deducted those amounts from your taxable income in the past. That’s how it got in there so it’s never been exposed to tax. So, if you’re going to convert it to a Roth, well, Roth tax consequences are opposite from the traditional IRA. So, you have to pay tax on Roth amounts the year you contribute them, but then you never pay tax on them again. So, they’re opposite of what you’re used to. We’re used to putting money in tax-free and paying tax on the money when it comes out after age 59 ½ but Roths are the opposite. The benefits of having balances in Roth IRAs over traditional IRAs include that you never pay tax on that money again. You do not have required minimum distributions in the future, and your heirs also inherit the money tax-free. And the goal of a successful Roth IRA conversion is to have more control over the tax rates you’ll pay in retirement and to pay less taxes in years when your tax bracket is higher than it is in the year you complete the conversion. 


Okay. That’s it on taxes. Let’s talk about gifting. You might want to give money to individuals or charities. By the way, the gifting conversation is still a tax conversation. This is really just one big tax conversation. Okay? So, you might want to give money to individuals or charities. The most tech-savvy way is to give your appreciated stocks or investments to either charities who can sell them and pay no tax or to give them to people you know who are in a lower tax bracket than you. I actually did that this year. I made a small gift to a cousin of mine who’s a single mom and I gave her shares of a mutual fund that I was holding that had appreciated. You can give $15,000 to any individual tax-free. In 2019, you can also fund your grandchild or friends’ kids 529 if you like. If you and your spouse want to give to your friend and her spouse, you can give up to $60,000 tax-free because you can each give $15,000 to each person. So, two people giving to two people, that’s four times $15,000 tax-free. Taxable gifts are no fun because the gift tax is 45% and you have to pay that. So, if you give $100,000 taxable gift, you owe Uncle Sam $45,000. That is no good.


By the way, let me do a little aside here on the idea of capital gains. People get really messed up in their thinking about having stocks that are in a gain position. So, let’s say you bought something for $500 and now it’s worth $2,000 so you have $1,500 of taxable gains on that investment. And people get to thinking, “I can’t sell that because I don’t want to pay the tax.” Except here’s the rub. How are you going to enjoy your gains? Now, whether what you think about taxes is irrelevant to this conversation, that’s an advocacy conversation. In other words, if you want to go lower the tax bracket, more power to you, but the tax bracket is what the tax bracket is. So, the tax is with the tax is right now. And holding investments because you don’t want to pay the tax if you need the money just doesn’t make sense. Now, there are situations in which you want to let the money continue to compound and we do really savvy tax planning for folks in that situation. But ultimately, there are only three things that you can do with taxable gains.


One, you can sell them and pay the tax so that you can spend your money, two, you can give them to charities or, three, you can give them to people in a lower tax bracket than you. And you do need to make that decision or you’re going to end up dying with those gains in place. You’ll never get to spend your money or decide what happens to it. If you want to leave it for your heirs and if you don’t need it as part of your spending plan, that’s all well and good. I just think that you should, as I said earlier, author your life. You should make that decision. A no decision is a decision. It’s just letting the money sit there. So, if you have gains in your account, congratulations. You made money. You accomplished the number one rule in investing which is buy low and hopefully sell high. 


Okay. Getting back to making gifts and I said earlier if you give $100,000 taxable gift, you owe $45,000 to Uncle Sam. It gets even more complicated because you actually have a lifetime gifting exemption of $11.4 million. So, if you give a taxable gift, you record it with the IRS, but then you say, “Hey, I’m taking this off my lifetime exemption,” and you don’t own a gift tax. Isn’t that weird? Yeah, that’s the IRS for you. It’s a strange rule, but that’s the thing. 


Alright. So, I hope this is useful for you and I really hope you’re getting professional advice on this stuff. You can tell it’s complicated and you don’t want to get it wrong. I hope you’re enjoying lots of friends and family and time to yourself this holiday season. Don’t break the bank on holiday spending because, remember, it should be about making memories far more than buying gifts. For notes on today’s episode, please see HilaryHendershott.com/152 where you can find a written End of Year Wealth Building Checklist in the show notes for today’s episode.


Thanks for tuning in, profit boss.



Hendershott Wealth Management, LLC and Profit Boss® Radio do not make specific investment recommendations on Profit Boss® Radio or in any public media. Any specific mentions of funds or investments are strictly for illustrative purposes only and should not be taken as investment advice or acted upon by individual investors. The opinions expressed in this episode are those of Hilary Hendershott, CFP®, MBA.