I’m 34 and employed. We just bought a house and are expecting a child soon — our first. In terms of end of the year financial planning, what are some things I need to shore up before 2019 comes to an end? Is there an end of year financial checklist to go over? Does it change now that I’m a homeowner and expecting a child? Any help would be greatly appreciated. — Terry, via email
December rushes past. Most of us don’t have a whole lot of extra time at the end of the year. And yet, doing a little last-minute financial strategizing can be time well spent. That’s especially true for someone like yourself, who has a couple of huge life changes going on.
In terms of the house, it’s important to start thinking about the tax implications, which can be significant. Because the standard deduction nearly doubled with the tax cut that went into effect last year – it’s $24,400 for couples with a joint return in 2019 — fewer people are itemizing their deductions now. And since you’re only paying property taxes for part of the year on your new home, you’re probably among those who don’t.
If you know you’re going to take the standard deduction anyway, what you may want to do is postpone your year-end property tax payment until January, says David Hunter, an advisor with Horizons Wealth Management in Asheville, North Carolina. By bunching your 2019 and 2020 real estate taxes into a single calendar year, you might have enough deductions next year that itemizing gives you a bigger break. It’s true that you can only deduct $10,000 of state and local taxes in a single year. But if you expect to have more deductible expenses next year, like mortgage interest and charitable donations, the calculus may be different. “At least you have a chance of being able to deduct (property taxes) if you can surpass the standard deduction,” says Hunter.
Because you have a baby on the way, this might be a good time to reevaluate your health insurance options as well. In addition to your wife’s OB/GYN checkups and the birth itself, you can look forward to pediatrician visits every few months during that first year. So yeah, the bills are going to add up quickly.
That means it’s worth checking your medical plans through you or your spouse’s employer, assuming at least one of you has health coverage as part of your benefits package. While higher-deductible plans often make the most sense for people who don’t consume a lot of health care, your family, sadly, won’t be in that boat next year. Some comparison shopping is definitely in order.
Missed your company’s open enrollment period? Don’t fret it. Having a baby is one of the “qualifying events” that allows you to make changes to either an employer or Marketplace plan mid-year.
While you’re busy getting your financial house in order, here are a few other things you might want to tick off the list as 2019 draws to close:
- Tap those flexible spending accounts. FSAs work on the use-it-or-lose-it principle – you can’t carry over balances from this year into the next. So if you or your spouse have one of them and there’s still money left, use it to pay off doctor bills or lab costs – or even a refill on your contact lenses.
- Make sure you have adequate life and disability insurance. Now that you have a little one depending on your paycheck, your family needs a financial safety net. You can buy policies on the individual market at any time, although open enrollment periods are a good opportunity to compare those against the insurance options that your employer offers. Often, you can purchase a stepped-up benefit that goes beyond9 the basic coverage included in your benefits package – and group policies are typically cheaper than those on the individual market, says Hunter.
- Recalibrate your savings strategy. Between the clothes that they’ll quickly grow out of and diapers that they’ll quickly soil, babies are a huge strain on any parent’s checkbook (apologies for that shocking news!). Add in the house you just bought, and there’s suddenly a lot less room for error when it comes to your finances. Use the relatively calm time right after Christmas, especially if you have some time off work, figure out how you can bulk up your 401(k) contributions and emergency fund. “With a new mortgage and a new child, it’s a lot more important to have a cushion,” says Hunter.
These must be wild times for both you and your wife, between the holidays and the expectation of a little one in your home. Good on you for remaining clear-headed enough to think about how you can shore up your finances before things get even crazier.
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