6 Money Moves to Consider Before Dec. 31
They could lower your taxes and increase your retirement account
Don’t let the distractions of a busy holiday season prevent you from making important and timely financial decisions. From donating to charities to putting extra money in your retirement account, here are six money moves to consider making before Dec. 31:
1. Maximize End-of-Year Retirement Contributions
Make sure you are maximizing every opportunity to stash money for retirement, says Christine M. Searle, certified internal auditor and owner of Searle Business Solutions, in Arlington, Va.
“These are your peak earning years and you should lean into your saving goals,” notes Carla Dearing, CEO of Sum 180, an online financial planning firm based in Louisville, Ky.
A recent study by the Center for Retirement Research at Boston College found that while households tend to increase their retirement saving after their children leave home, the increases are extremely small. “Among the explanations offered for the lackluster increase in savings is empty nesters’ continued financial support of adult children,” Dearing says. “Picking up their grown kids’ expenses — student loans, insurance, auto payments, smartphone bills — is a generosity those who have not yet saved enough for retirement can ill-afford.”
The maximum amount that employees can set aside for retirement this year is $18,000 — $24,000 if you are 50 or older, due to the “catch-up” rules. However, most plans will require you to set up catch-up contributions as a separate deduction, says Kelley C. Long, a CPA and financial planner with Financial Finesse in the Chicago area.
2. Donate to Charities
Keep in mind that charitable contributions are deductible in the year they are made. This is true even if you’ll donate by using a credit card in December and won’t make the payment until 2017.
If you’ll be donating clothes or household items to a charity, says Long, get a receipt and take the time to write down the estimated value of each item. Goodwill even offers an online calculator to help you document and tally your donation.
Before you make a cash donation, Searle recommends that you check the IRS website to make sure the organization is eligible to receive tax-deductible charitable contributions. Churches, synagogues, temples, mosques and government agencies are, even if they are not listed in the database, according to the IRS.
3. Use Your Flexible Spending Account Medical Benefits
If you have money set aside in a workplace Flexible Spending Account for medical expenses, make sure you have used all the funds by year’s end. If you have money left in your account but don’t have any pressing medical needs, buy contacts, glasses or contact lens solution if you need any of those, Long says. Just check your plan for an approved list of items before making purchases, she adds.
Keep in mind, too, that there’s still time to schedule a dental cleaning or eye exam before the end of the year.
4. Make 529 Plan Contributions for Your Kids or Grandkids
You can put up to $14,000 this year in a 529 college savings plan for each child or grandchild without incurring gift taxes. If you’re married, each spouse can give $14,000 per child. This money is not subject to federal tax and generally not subject to state tax when used for qualified education expenses such as tuition, fees, books and room and board. However, contributions to a 529 plan are not tax-deductible.
The Savingforcollege.com site is full of helpful information about 529 plans and has a handy tool to compare state plans.
5. Sell Losing Investments to Offset Capital Gains
You should never sell an investment purely for tax purposes, but taxes are something to consider when reviewing your portfolio. If you had investment gains and investment losses in 2016, selling some losers in December can offset the taxes you’ll owe on the gains.
However, Long cautions, don’t sell stock just because it’s down. And don’t buy shares of the same investment within 30 days of selling your losses or you won’t be able to claim the tax write-off.
6. Pay Tax-deductible Bills That Are Due in January
If you’ll have estimated state taxes due in early January, you can pay them in December and take the tax deduction for 2016, Long says.
Such a move could be especially useful this year, due to the prospect of tax reform in 2017. President-elect Trump and Congress could lower your tax rate next year, so tax deductions would be worth more to you in 2016 in your current, higher bracket.