Year-End Financial Planning

As the end of the year approaches it’s time to do a little financial planning to make sure that you are taking advantage of the time left to maximize the benefits of smart tax planning, investing, and retirement saving.

Tax Considerations

Increase contributions to tax-advantaged savings accounts. If you contribute regularly to your traditional 401(k) or similar workplace retirement plan, see whether you can contribute more and up to the max by December 31. You may be able to reduce your earned income by $18,000, the maximum you can contribute to a 401(k) for 2016, a potential $4,500 tax savings if you’re in the 25% tax bracket. And if you’re age 50 or older, you can contribute an extra $6,000, for a maximum contribution of $24,000.

If you don’t have a 401(k) or retirement plan at work, you may be able to reduce your taxable income by contributing to a traditional IRA to save for retirement. You can contribute up to $5,500 if you are under age 50, and $6,500 if you are age 50 or older. You don’t need to have a job to contribute to an IRA, either. A nonworking spouse, as long as his or her spouse has taxable income up to the contribution limit, can contribute to an IRA. Alimony is also considered income, so a nonworking person receiving alimony may also be able to contribute to an IRA. Self-employed individuals can contribute up to $53,000 or 25% of eligible income, whichever is less, to a SEP-IRA.

If you have a health savings account (HSA), see if you are contributing the max: $3,350 for an individual and $6,750 for a family, plus an extra $1,000 if you are age 55 or older. An HSA has triple tax benefits. Your contributions are made with pretax dollars so you reduce your current taxable income, and withdrawals are federal-and state-tax free if used to pay for HSA-qualified medical and healthcare expenses.

Donate to charity.

If you itemize deductions on your tax return, donating to a charity before the end of the year may help you lower your 2016 tax bill. For non-cash contributions over $250, you’ll need a receipt that includes a description of the item and other details.

Tax Loss Harvesting

If you invest in stocks, bonds, or mutual funds in a taxable account you may be able to take advantage of any unrealized losses to reduce taxes on any investment gains or distributions from mutual funds. Tax-loss harvesting is fairly simple. Offset your realized taxable gains on your investments (capital gains) with realized losses (capital losses). That means selling stocks, bonds, and mutual funds that have lost value, to help reduce taxes on gains from investments that you have sold that had gains. Tax-loss harvesting needs to be done by December 31.

Check Your Financial Plan

A quick review of where you are in your financial plan can help ensure you’re prioritizing your goals and staying on track for the future.

  • Savings goals – Whether you’re saving for retirement, for buying a home, for paying for a child’s college education, or for another important goal, an annual status check will allow you to make adjustments.
  • Insurance Coverage – Has your financial situation changed this year? New baby, house or a change in employment? These are all good reasons to revisit your home, auto and life insurance coverage.
  • Beneficiaries – Make sure your assets will transfer to the ones you want. Life changes, and reviewing your beneficiaries ensures that your wishes are carried out after your death.
  • Estate Plan – A basic plan includes a will, a financial power of attorney, as well as instructions for what happens if you become incapacitated. Naming a health care power of attorney and establishing a “living will” regarding end-of-life medical directives, can help your loved ones understand your wishes. Discuss your plans with family members.
Check Your Credit

Being aware of what’s on your credit report is important. Whether you’re considering a loan, applying for insurance, or planning any of those in the future, it’s a good idea to check your credit report annually. Equifax, Experian, and TransUnion are required to provide you with a free copy of your credit report, at your request, once every 12 months. Go to to get yours.

Some of the things need to be addressed by December 31 and others are an important part of a year-end financial checkup. Do it now before the holidays are in full swing and you will be ready for the New Year.

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