Financial Actions To Take Before The Ball Drops

Maura Schauss |

By Maura C. Schauss, CFP®

Before the year’s end, in the midst of the holiday events and travel, the last thing you want to think about is your finances. But considering how finance-related resolutions are the third most popular New Year’s resolution, (1) why don’t you give yourself a head start on your 2019 financial goals? Here are 10 critical financial actions you’ll be glad you tackled when the ball drops on New Year’s Eve!

1. Amp Up Your Retirement Savings

If possible, max out your contributions to your 401(k) by the end of the year to make the most of your retirement savings. For 2018, you can contribute as much as $18,500 (or $24,500 if you are age 50 or older). Remember these are your contribution limits and any employer match is on top of this. Finish the year strong by investing in your future!

2. Consider a Roth Conversion

Roth IRA retirement accounts 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 December 31st, so if you’ve been considering doing so, or wonder if it’s an appropriate option for you, talk to your financial advisor ASAP.

3. Double-Check RMDs

If you’re retired, review your retirement accounts’ required minimum distributions (RMDs). An RMD is the annual payout savers must take from their retirement accounts, including 401(k)s, SIMPLE IRAs, SEP IRAs, and traditional IRAs, when they turn 70½. If you don’t, you may face the steep penalty of 50% of the distribution you should have taken. If you don’t need your RMD money to live on, consider donating the funds to a worthy cause, which could also lessen your tax burden for the year. To calculate your RMD, use one of the IRS worksheets.

4. Stay On Top Of Charitable Contributions

If you made a charitable contribution in 2018, 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 your donations to charities, whether it was a cash, securities contribution, or another type of gift.

5. Invest In A College Savings Plan

If you have children in your life, contributing to a 529 savings plan is an excellent way to jumpstart their college savings and give a thoughtful holiday gift that will last longer than a few months. This type of educational savings plan was created so that families can receive tax benefits for saving towards qualified higher education expenses. After-tax money is invested in a 529 plan where it grows tax-free. When the money is later taken out for qualified expenses, there are no federal taxes due. Over 30 states also offer a deduction or tax credit for contributions to a 529 plan. (2) In addition, as of January 1st, 2018, up to $10,000 a year can be used for elementary and high school costs at public or private institutions.

6. Use Your Medical And Dental Benefits

Did you have good intentions of taking care of some dental work, blood tests, or other medical procedures? 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 any treatments, make an appointment before December 31st.

7. Verify 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 HR department to learn about any expiration dates. If your sick or vacation time does expire, fit in a last-minute vacation, a staycation, or trips to the doctor to use up these benefits.

8. Use Your Flexible Spending Account

Like your health insurance benefits, you’ll want to use up your FSA (Flexible Spending Account) dollars by the end of the year. Your benefits won’t carry over and you’ll lose any unspent money in your account. Check your account restrictions to verify what your FSA funds can be used for.

9. Speak to Your Advisor About Tax Loss Harvesting

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 and if it makes sense for you. Any appropriate actions need to be taken by December 31st.

10. Give Without Gift Tax Consequences

It’s never too early to start planning for the legacy you want to leave 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 $15,000 to as many people as you wish without those gifts counting against your lifetime exemption of $5.6 million. If you’ve yet to gift this year or haven’t reached $15,000, consider gifting to your children or grandchildren by December 31st.

Take The First Step

Do you need to take any of these steps before the ball drops on New Year’s Eve? We would love to help you finish the year off strong and set you up for a successful 2019. Call our office at 703.584.2700 or email clientservices@washingtonwealthadv.com so we can work together for your financial peace of mind.

About Washington Wealth Advisors

Washington Wealth Advisors is an independent, registered investment advisory firm serving high net worth individuals, families and small businesses. We focus on holistic financial planning and comprehensive investment management. Leveraging our core strengths of unbiased, active investment management together with a detailed annual financial planning capability, we serve your comprehensive investment and financial planning needs.

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(1) http://www.statisticbrain.com/new-years-resolution-statistics/

(2) http://www.savingforcollege.com/articles/coming-soon-big-changes-to-529-plans