Year-End Financial Planning
Oct 31, 2016 11:17AM
by Barry Wind and Jeremy A. PearceAs the holiday season approaches, many often think of the shopping trips to take, travel plans to make and cookies to bake. Often overlooked in this hectic time of the year are the critical financial tasks we can do before 2016 bows out so that 2017 is indeed a happy new year. Below are a few end-of-year recommendations to help get—and keep—your financial life in order.
1) Plan ahead for April 15, 2017: There are several ways to minimize your 2016 tax bill if you take action before the end of the year.
- Maximize your retirement contributions. You can contribute up $5,500 ($6,500 if 50 or older) to your traditional or Roth IRA. Contributions to your traditional IRA may be deducted from your federal taxes. If you participate in a 401(k) or 403(b) retirement plan at work, you can reduce your taxable income in 2016 by contributing up to $18,000 ($24,000 if older than 50) to your plan. If you cannot contribute the maximum, contributing as much as possible is still a great way to build for a secure retirement and reduce your tax bill.
- Make charitable donations. Qualified contributions to your favorite charitable organizations or supporting new ones can reduce taxable income. If you donate investments that have increased in value, you may be able to directly donate these investments and receive the tax deduction as well as avoid paying capital gains on the investment.
- Organize your tax materials. While April 15 may seem like a long way off, it pays to start organizing your tax files now, including collecting relevant receipts and income statements.
2) Liquidate your Flexible Spending Accounts (FSA). For those of you who have a FSA for health care expenses through your employer, you must spend most or, in the majority of plans, all of the funds you have in the account by year end. Unused funds may be forfeited.
3) Take your required minimum distribution (RMD). For those at least 70 1/2 years old and who have a 401(k) or traditional IRA retirement plan, you must take the required minimum distribution (RMD) from the account by end-of-year.
Other actions you might want to consider taking before the close of year include:
- Increase your emergency fund to have at least three, if not six, months' worth of expenses in the bank.
- Organize and identify all of your important legal and financial documents and information, such as wills and power of attorney forms, bank and investment accounts, insurance policies and safe deposit box location.
- Review your budget and spending for 2016 and identify areas where you can spend less and contribute more toward your financial objectives.
- Review your insurance needs and determine if additional home, life, disability, health or long term care insurance is needed.
- Review and update, if needed, your beneficiaries on your insurance policies and retirement accounts.
Finally, if you have a financial advisor or accountant or are thinking of bringing one on, now is a great time to have a face-to-face meeting. Career changes? Need to start college savings for a child? You may want to review and update your adviser on any changes over the past year, get ready for the upcoming tax season and plan for 2017 and beyond.
The holiday season is almost here. Be sure to make room between the parties and celebrations to take the necessary steps for a brighter financial future.
Barry Wind and Jeremy A. Pearce are financial advisors in the Washington, D.C. area, specializing in socially responsible investing with SharePower Responsible Investing, Inc. Comments and questions can be sent to [email protected] and [email protected]
Investing involves risk including loss of principal. Different types of investments carry varying degrees of risk and clients and prospective clients should be prepared to bear investment and original principal loss. Investing, including socially responsible investing, does not guarantee any amount of success. These are the opinions of the author and not necessarily those of Cambridge Investment Research, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.
Securities offered through Cambridge Investment Research, Inc. member FINRA/SIPC. Advisory services through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and SharePower Responsible Investing, Inc. are not affiliated.