Last Minute Tax Changes That Can Save You $1,000s

Bill Sweet is CFO of RWM. He is a triple threat: CFO, with an expertise in tax planning and financial planning. He is invaluable to our clients (read more about Bill here). This post is a perfect example why. Enjoy.


The tax deadline approaches, and we will soon be out of time. In less than two weeks the calendar flips to 2020 and your tax year begins anew. Here are some tax-saving moves you can make now to take advantage of what remains in 2019. 

1) Dial up your last 401k contribution -> as high as 100% 

Instead of letting Uncle Sam take a bite of your earnings, pay your future self with 100% of your last paycheck of 2019. Logging in to crank up your 401k contribution to all of your pay might seem crazy, but nothing impresses friends and relatives around the holidays more than turbocharging your retirement – and cutting your taxable income – by the maximum allowable amount. 

When your funds flow into your retirement plan you won’t recognize the income in the current tax year. Contribution limits are all on a calendar-year basis so as long as you’re under $19,000 for all of 2019 (or $25,000 if you’re over 50) this is a great way to boost your retirement savings. 

Just make sure that you have some cash in the bank to cover your end-of-month bills! Non-qualified distributions are subject to an extra 10% penalty. And if you want this to be a one-time event for the end of December, make sure that you reset your contribution percentage in January. 

2) Get cash into your IRA account ASAP

You have until April 15th of next year to make a contribution to your IRA and have it still count towards tax year 2019, but there’s no time like the present. IRA contribution limits increased to $6,000 per tax year beginning in 2019, with an additional $1,000 available to savers over 50.

If you earn less than $74,000 as an individual or $123,000 joint you can deduct at least part if not all of your IRA contribution from your taxable income. Over the income limit? Consider either a direct contribution to a Roth IRA if you’re under $122,000 single or $193,000 joint, which doesn’t present an up-front tax benefit for 2019 but gives you any investment gain in retirement tax-free. 

Once the calendar year opens in January, you may contribute a maximum of another $6,000. Put that cash to work! 

3) Push funds into your or your kids’ 529 college savings plan

About 36 out of the 51 states + DC offer a state tax deduction or credit for making a contribution 

to a 529 college savings plan. The tax benefits can add up significantly over the years – in New York, up a $10,000 deduction for a couple per year, translating to around a $120 annual benefit depending on your tax rate. Each state differs in how they treat 529 contributions – Morningstar did a great job calculating the value of each here:



Don’t have your own child to save for? Pick a nephew or a niece. There’s no better Christmas present than the gift of education. You can even name yourself as your 529 account beneficiary if you are planning on grad school or thinking about a career change. 

You won’t receive a federal tax benefit to making 529 plan contributions for 2019. But any future distributions to pay for tuition, books, and required fees to an educational institution are usually made income-tax free. This means the potential for state tax benefits on the front-end with no tax on the back-end, which is a rare combination. 

4) Fund your Health Savings Account for tax-free medical spending

HSAs (health savings accounts) allow for the best of both worlds: tax deductible contributions PLUS tax-free distributions. Individuals can contribute up to $3,500 for tax year 2019 while families can contribute up to $7,000. When used for qualified medical spending, distributions are income tax-free.

Many rules apply to HSAs, however. You must participate in a high-deductible health plan (HDHP) which have a specific definition under the IRS and are subject to certain rules and conditions. Check with your health plan to see if you’re eligible and if so get cracking! 

Even if you don’t have any current medical expenses, funding your HSA is a good idea. Unlike flexible spending accounts (FSAs), HSAs allow for plan assets to be carried forward almost indefinitely. HSA distributions received after age 65 avoid the 10% early distribution penalty. 

5) Small business & side hustle savings plans

Business owners, including gig economy workers who receive Form 1099 and are technically self-employed, have several retirement plan options that aren’t available for those of us getting paid on Form W-2. 

SEP IRAs – Simplified Employee Pensions – offer extreme flexibility and a long contribution window. You can contribute to your SEP IRA plan for your business all the way out to the tax extension deadline of October 15th, 2020 and still qualify for a 2019 contribution and deduction. Contributions are limited to 17.3% to 23.6% of your net business income (25% of your gross income after all expenses, less ½ of your self-employment tax paid). 

Solo (Individual) 401k plans offer increased contributions following roughly the same rules as large-scale corporate retirement plans. You’re able to defer on $19,000 of your net income or $25,000 if you’re over 50, plus an additional profit-sharing component usually around 20% of your net income less the elective deferral total. However plans must be set up and contributions elected during the current plan year even if you have until either March 15th or April 15th to fund the contribution. 

Keep in mind that both SEP IRA and Solo or Individual 401k plans have specific non-discrimination rules and regulations. Unless you’re feeling especially generous towards any employees who are working for you, it is probably best only to consider these plans if you (or your spouse) are the business’ only employee. 

Time is wasting! 



William Sweet, CFP®, is the Chief Financial Officer of Ritholtz Wealth Management. Bill has spent much of his career minimizing the impact of income taxes on investment returns. He served on active duty in the US Army as an Armor Officer for six years and was awarded the Bronze Star for valorous action in combat in 2003 during Operation Iraqi Freedom. Bill holds a degree in Computer & Systems Engineering from Rensselaer Polytechnic Institute (RPI). You can read his prior work here.

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