The end of the year is quickly approaching and it goes without saying that most of us are starved for time. December may be a hectic month, but it is also a great time to get your financial house in order before the New Year. Here are some quick and easy year-end financial fixes that will help you start 2017 off right.
Maximize your retirement savings.
Most of us receive regular reminders of the importance of saving enough for retirement, and starting as early as possible. The final weeks of the year provide an opportune time to take an inventory of savings and make any last-minute adjustments.
- Workers under age 50 can defer up to $18,000 to their 401(k), 403(b), Section 457 or federal government Thrift Plan, while those age 50 and over can contribute an additional $6,000.
- Traditional and Roth IRA contributions up to $5,500 ($6,500 for those ages 50 and over) can be made up until the 2016 tax filing deadline. An often overlooked rule allows a non-working spouse to contribute, so long as the working spouse’s income exceeds the sum of their combined contributions. Roth IRA contributions are non-deductible, and, unlike Traditional IRAs, may be made in full even if you participate in a retirement plan at work. Higher-income individuals and those covered under an employer sponsored retirement plan should be aware of income-based contribution and deduction limits for Traditional and Roth plans- click here for 2016 retirement plan deferral limits and deadlines.
- Review your payroll withholding to ensure that salary deferrals to your retirement plan and/or IRA are adequate.
Harvesting taxable investment accounts for losses.
Realized capital gains can be reduced by selling securities that are worth less than you paid to acquire them. If realized losses exceed realized gains, you may use up to $3,000 of them to reduce your taxable income, with any residual carried over for use in the future.
Giving is not only a nice thing to do, but it can help reduce your tax bill. Gifts to a qualified charity may be deducted on your tax return as an itemized deduction (subject to limitations). If you are unsure if the charity qualifies, the IRS maintains a searchable database of qualified charities.
Spend your health care flexible spending account (FSA).
While some employers offer a grace period, most do not. Unless you have additional time or the balance may be rolled over, plan to spend any remaining funds prior to year-end. The rules are liberal; some popular eleventh-hour purchases include eyeglasses, first aid kits, flu shots, nasal spray, pain relievers and sunscreen.
What’s new? Make note of any important changes in your circumstances and how these might impact your tax and financial planning.
The birth or death of a loved one, or moving to a new locale may require an update to your estate planning documents. A new job may mean an old 401(k) that can be consolidated. Asset titling, beneficiary designations, insurance programs and payroll withholding should be reviewed annually, and when significant changes occur.
While planning opportunities may be endless, time most certainly is not. By focusing on a limited number of things, you can enjoy the holidays with a well-deserved sense of accomplishment and still have plenty of time for what’s really important.