15 Smart Money Moves to Make Before the End of the Year
Although many people plan to take stock of their finances as a New Year’s resolution, waiting until year’s end could end up costing you money. There are several smart money moves to be made before year’s end. These could help maximize your tax refund, boost your retirement savings, keep you from wasting money, and get you on the right track to becoming financially secure.
1. Use up your FSA account
- Funds from a flexible spending account, or FSA, are pre-tax and cover certain out-of-pocket health care costs.
- The FSA contribution limit for 2017 is $2,600.
If you have a health or child care flexible spending account, check the balance and know the rules. With such accounts, typically if you don’t use the money by the end of the year, you’ll lose it. Some accounts do allow for a grace period or submitting expenses for reimbursement, but the expense itself needs to be made by year’s end. Keep in mind that some over-the-counter medical products like first aid kits, lip balm, thermometers, and cold packs typically can be purchased with FSA funds.
Next: Increasing retirement savings could bring tax benefits.
2. Contribute to your retirement fund
- 401(k) 2017 contribution limits: $18,000 for those under 50 and $24,000 for those over 50
- Traditional and Roth IRA 2017 contribution limits: $5,500 for those under 50 and $6,500 for those over 50
In 2017, people can choose to have $18,000 of their pre-tax income placed into their 401(k) accounts. Participants aged 50 and older are allowed an additional $6,000 catch-up contribution. You may wish to check how much you have contributed to date in 2017 and increase contributions accordingly for the rest of the year. If you have an Individual Retirement Account, or IRA, check to see if there’s room there as well for last-minute savings. The 2017 limit for both Roth and traditional IRA accounts is $5,500 if you’re under 50, and $6,500 if you’re over 50.
Next: Here’s why converting your IRA could be a smart move.
3. Consider converting your traditional IRA into a Roth IRA
- Before converting, make a guess about whether your tax rate will be higher or lower upon retirement.
If you have a lower income this year than last year (by taking on a new, lower-paying job or by having a gap in employment), you may want to convert money from a traditional (pre-tax) IRA to a Roth IRA in which the money has already been taxed. This could enable you to pay taxes on the money at a time when your tax rate is lower than usual. Converting to a Roth before retirement in general might be a smart move for those who feel they will be in a higher tax bracket upon retirement, when Uncle Sam would be seeking tax money on traditional IRA funds.
Next: Giving to charity now may increase your tax refund.
4. Make charitable donations
- You may deduct charitable contributions of money or property made to qualified organizations if you itemize your deductions.
If possible, make or increase charitable donations before Dec. 31 if you want to have more money counting toward your 2017 contributions for tax purposes. This could be in the form of Sunday donations at church, writing a check to your favorite charity, or donating clothes, toys, and other items to charity. (When donating items, be sure to get a receipt for tax purposes.)
Next: Funding college education could bring tax benefits.
5. Contribute to a 529 account
- $14,000 can be contributed per individual to a child’s college account in 2017 without gift-tax consequences.
Unlike with retirement savings accounts, there is no limit for the amount you can contribute to a 529 college savings plan annually. However, be aware of some rules regarding contributing money into a 529 plan. Contributions are considered gifts for tax purposes. In 2017, gifts totaling up to $14,000 per child qualify for the annual tax exclusion. For instance, if you and your spouse have three children (or grandchildren), you can gift up to $84,000 without gift-tax consequences. This contribution breaks down to one $14,000 gift for each child from yourself, and another contribution of the same value for each child from your spouse.
Next: Why give Uncle Sam a free loan?
6. Organize your tax documents
- In 2016, one-fifth of Americans filed their taxes between April 8 and April 22.
Tax Day may seem a mile away, but if you’re getting money back, you’ll probably want to file as early in the new year as possible. Why give Uncle Sam a free loan for any longer? Start collecting any available documentation now, including last year’s tax return and receipts for tax purposes. If you’re a notorious procrastinator when it comes to filing taxes, remember that pressure will only increase as tax-filing day draws closer. Any problems or discrepancies, when caught early, are that much easier to fix on time with minimal stress.
Next: Don’t wait until next year to see the doctor.
7. See your doctor
- After you hit your deductible, health care feels “on sale.”
If you’ve already hit your insurance deductible (call and ask if need be), you may save money on appointments you attend before the end of the year – not to mention, for health reasons alone it’s good to get in your annual well visit, mammogram, or colonoscopy. Also, remember that some procedures like Lasik surgery come with warranties which may require you to have an eye doctor visit each calendar year in order to remain valid.
Next: Don’t just dream of that beach vacation; save for it now.
8. Start planning next year’s summer vacation
- 45% of Americans take a summer vacation.
This is by far the most fun item on our list! Next summer’s vacation may seem so far off, but on a cold winter’s day, what’s more spirit-lifting than planning next summer’s exotic or action-packed summer vacation? Look up prices for hotels, plane fares, etc. Booking prices and vacancy rates will likely be much better now – and even early next year, when you receive your tax refund – than if you wait until springtime to book.
Next: Make sure your beneficiaries are who they should be.
9. Review your beneficiaries
- Different types of beneficiaries: primary, contingent, revocable, and irrevocable
Take a look at who your beneficiaries are, especially if you have gone through significant life events this past year, such as getting married or divorced, having a child, losing a close loved one, etc. Make updates, accordingly. Beneficiaries are listed on life insurance, retirement accounts, and checking/savings accounts. When checking beneficiaries, remember you may have more than one life insurance plan if your employer provides one as well.
Next: Get money in the bank for a rainy day.
10. Check your emergency fund
- 69% of Americans have less than $1,000 in savings.
It’s a good rule of thumb to save for a rainy day. Many experts recommend having at least three to six months’ worth of expenses tucked into a bank account or other safe investment. The money should be easily accessible. But financial guru Suze Orman actually recommends you have at least eight to 12 months’ worth of savings socked away. Her reasoning is if you find yourself jobless, it’s often not possible to find a new job in just three to six months.
Next: Getting insured now can save you decades of regret.
11. Consider buying more insurance
- 41% of Americans do not have life insurance.
It’s a good time to take stock of your insurance coverage before year’s end. Make sure you have enough auto, homeowners, and life insurance coverage. For auto insurance, make sure your liability limits are sufficient. If you don’t have disability insurance, consider getting some to protect your family in the event you are rendered unable to work due to sickness or injury. The same goes for your spouse. Should anything unfortunate happen, you’ll be glad you were prepared for it.
Next: This step will help you become financially secure.
12. Set money goals for 2018
- Some basic steps could point you in the right financial direction.
Set a target for how much you want to fund your emergency savings account in 2018, and figure out how much money from each paycheck will get you there. Determine how much money each month you want to contribute for your retirement account or a 529 college savings account. This type of planning is necessary in order to reach goals and become financially secure. Figure out how much money you need to save (or take from your tax return) to fund that much-anticipated vacation in 2018.
Next: The dreaded “b” word is doable if you take it one step at a time.
13. Set up a 2018 budget
- 32% of Americans maintain a household budget.
This step goes hand-in-hand with setting money goals but delves into many more areas of your money. Budgeting is simply making sure you’re spending less money than you’re bringing in, and planning for the short- and long-term. Many people don’t create a budget because the thought of doing so feels stressful. However, it’s a requirement if you want to be financially successful. If you don’t have a budget system and want to set one up, remember it’s a matter of taking one simple step at a time. Investopedia provides a budgeting tutorial which covers setting up a budget and using it to improve your financial situation.
Next: Don’t be in the dark. Pull your credit report.
14. Check your credit
- The average American’s credit score is from 669-699.
Pull your credit report from the three credit reporting agencies: Transunion, Experian, and Equifax. You can do this on AnnualCreditReport.com. Check for any errors, and work to rectify any past-due debt to help improve your credit score. Use any such situations as learning opportunities to help ensure you’re making all future payments on time to maintain good credit – and reduce stress. You can pull your report free from the above website once a year. However, finding out your credit score will cost you a fee.
Next: See what very important document 6 in 10 adults do not have.
15. Make a will, or review your existing one
- 6 in 10 U.S. adults do not have a will.
If you don’t have a will and don’t know where to get started, a simple search on the Web will bring up helpful results. Nolo is a resource for information on how to write a will yourself, what to include in your will, and how to make the will legal. Orman recommends everyone get a living revocable trust. Such a document covers where assets are to go upon a person’s death (as a will does), but it also covers how assets will be handled in the event the person is alive but incapacitated.
If you already have a will or living trust, a worthwhile exercise would be to review the document to make sure it still reflects your wishes and is up to date.
Check out The Cheat Sheet on Facebook!