Believe it or not, 2017 is almost here. It seems like every year flies by and we find ourselves in shock as we approach the last few weeks of December. While it can be a celebratory time of year as we enjoy the holidays and get caught up in the festivities, it can also be overwhelming for some of us. As we get ready to say goodbye to 2016, we may realize that we have not accomplished all our goals and we frantically attempt to squeeze in a few last-minute projects before Jan. 1 rolls around. (For related reading, see: 6 Cash-Saving Tips for the Holiday Season.)
Since your wallet definitely won’t be gathering dust this season, why would you let your financial plan fall to the wayside? Here are ten critical financial steps to take before we enter the new year.
1. Max Out Your Retirement Savings
If possible, increase your contribution to your 401(k) plan by the end of the year to make the most of your retirement savings. For 2016, you can contribute as much as $18,000 (or $24,000 if you are 50 or older). You may also consider contributing to a Roth IRA. You can add as much as $5,500 (or $6,500 if you are 50 or older). Keep in mind that if your income is more than $132,000 if you're single or $194,000 if you’re married filing jointly, you won’t be eligible to contribute to a Roth IRA.
2. Use Up Your Medical and Dental Benefits
Have you been planning to get a root canal, blood work, or other medical or dental procedure? Now’s the time to take advantage of all your healthcare needs before your deductible resets. Dental plans, in particular, often have a maximum coverage amount. If you haven’t used up the full amount and anticipate treatments, make an appointment before Dec. 31.
3. Check Expiring Sick and Vacation Time
Depending on your company, your sick or vacation time might expire at the end of the year. Check with your human resources department to learn about any deadlines. If your sick or vacation time does expire, fit in a last-minute vacation, a staycation, or trips to the doctor so you don’t lose this valuable benefit.
4. Use Your Flexible Spending Account
Like your health insurance benefits, you’ll want to use up your flexible spending account (FSA) dollars by year’s end. Your benefits won’t carry over and you’ll lose any unspent money in your account at the end of the year. Check the restrictions for your account to see what the money can and cannot be used for. (For related reading, see: How to Create an Effective Budget.)
5. Review Required RMDs
If you are retired, review your retirement accounts’ required minimum distributions (RMDs). An RMD is the amount the federal government requires you to withdraw each year from your retirement accounts, including 401(k)s, SIMPLE IRAs, SEP IRAs, and traditional IRAs, when you turn age 70.5. If you don’t take them, you may face penalties. To calculate your RMD, use an IRS worksheets or consult with your advisor who can assist you in calculating your RMD with your account custodians.
6. Stay on Top of Charitable Contributions
If you made a charitable contribution in 2016, you might be able to lower your total tax bill when you file early next year. It can be especially advantageous if you donated appreciated securities to avoid paying taxes on the gains. Along with your other tax documents, find and organize any receipts you have from donating to charities, whether it was a cash donation, securities contribution, or another type of gift. (For more, see: How to Minimize Estate Taxes With Charitable Donations.)
7. Consider a Roth Conversion
Roth IRAs are attractive because you don’t pay income tax when you withdraw funds in retirement. However, if you’re a high-income earner, you may not be eligible to contribute and instead invest in a traditional IRA. If you have a traditional IRA, you may have the opportunity to convert to a Roth IRA and save money on taxes in the long run. The deadline to convert to a Roth IRA is Dec. 31, so if you’ve been considering doing so, or wonder if it’s an appropriate option for you, talk to your financial advisor ASAP.
8. Speak to Your Advisor About Harvesting Losses
If you invest in bonds, mutual funds, or stocks in accounts other than your 401(k) or IRA, review your realized and unrealized gains and losses. You might be able to offset some of your gains by selling some losses. Tax-loss harvesting can help you save on taxes, but you want to make sure the move also makes financial sense for your situation. Talk with your advisor about potentially harvesting your losses. Should you determine tax-loss harvesting is appropriate, you’ll need to complete it by December 31st.
9. Set a Budget for Holiday Spending
Not surprisingly, Americans will spend nearly $1,000 this year on holiday gifts alone. During such an expensive time of year, a budget is a must to avoid overspending. Break down your spending and allocate a set amount of funds for everything you need this holiday season, including gifts (with an individual budget for each person), food, transportation, postage, and gift wrap. Be realistic about what you can afford to spend.
10. Give Without Gift Tax Consequences
It’s never too early to start planning the legacy you want to leave for your loved ones without sharing a good portion of it with Uncle Sam. You may want to consider gifting. Each year, you can gift up to $14,000 to as many people as you wish without those gifts counting against your lifetime exemption of $5 million. If you’ve yet to gift this year or haven’t reached $14,000, consider gifting to your children or grandchildren by Dec. 31. (For related reading, see: What Are the Characteristics of Successful Investors?)