The holiday season is a time of year when many of us reflect on our lives. It's also a good time to reflect on your financial plan. We want to provide you with a checklist to review some items that may impact your overall financial plan as the clock winds down on another year.
- Review your goals and set new ones.
- What went well this past year? What didn't? What specific steps can you take going forward to improve your financial situation? It's important to ask yourself these questions and develop attainable goals for the future.
- Review contributions and beneficiaries for 401(k), 457(b), and 403(b) retirement plans.
- Are you wondering what to do with that holiday bonus? Or maybe you haven't been contributing as much as you would have liked. Consider increasing your contributions - the maximum annual limit for these plans is $18,000. The more you contribute to these plans, the less taxable income you have to claim come tax time.
- Over the age of 50, or turning 50 next year? Take advantage of an extra $6,000 in allowable catch-up contributions.
- Be sure to update beneficiaries on any account or plan.
- Max out contributions to an existing IRA or Roth IRA.
- The maximum contribution limit for both a traditional IRA and a Roth IRA is $5,500; if you're 50 or over, the maximum is $6,500. Some additional limits may apply depending on income.
- Although you have until April 15, 2017, to make those contributions, it's at least a good idea to have a plan in place now.
- Look at converting an IRA or former tax deferred employer plan to a Roth IRA.
- If you're in a lower tax bracket this year than you expect to be in the future, convert your IRA or tax-deferred employer plan to a Roth IRA. By doing so, you will pay income tax on the converted amount, but then never have to pay tax on the account again. Just be sure the converted amount is small enough to keep you in that low tax bracket.
- Be sure to take your required minimum distribution if you are 70 1/2 or older and retired.
- This applies for any retirement account, unless you are still working.
- For more information, visit the IRS website, Retirement Topics - Required Minimum Distributions.
- Re-balance your portfolio.
- You can offset the taxes to capital gains by selling off poor-performing investments at a loss. Additionally, you can actually deduct up to $3000 in capital losses against ordinary income if those losses exceed gains.
- Be careful: there are distinctions between short- and long-term capital gains/losses. Check with your advisor to see if this strategy applies to your individual situation.
- Claim part of next year's tax deductions now.
- Was your income unusually high in 2016? Cut your tax bill by taking care of next year's deductible expenses now. For example, pay January's mortgage now, pre-pay property tax, or take care of annual professional membership dues.
- Spend your FSA.
- If you have a flexible spending account to cover health care costs, be sure to spend it before the end of the year, or you may lose it.
- Some employers offer a grace period that extends your deadline into 2017, while others allow up to $500 to be rolled over to next year. But if you have to spend the funds, click here for some ways to exhaust your account before the ball drops.
- Consider college education for yourself AND establish college savings for others.
- The lifetime learning credit lets you deduct up to $2,000, depending on your income, for further education from an accredited school. Register and pay now for a class to learn new skills or enhance the knowledge you already have - just be sure the class starts no later than March 31, 2017.
- Consider establishing a 529 College Savings plan for your children, grandchildren, nieces, and nephews. The NextGen College Savings Plan through the Finance Authority of Maine offers different matching grants, and any baby born in Maine is entitled to an automatic $500 grant from the Alfond College Challenge Foundation. For more information, visit the NextGen website and contact us to start open an account.
- Make charitable contributions.
- What better time of year to donate to your favorite 501(c)(3) organizations - 'tis the season for giving, after all. Donations can lower your income, which in turn, may mean a lower tax bracket and more tax breaks.
- If you're 70 1/2 and older, you can donate up to $100,000 from your IRA, count it towards your RMD, and exclude it from your adjusted gross income.
Keep in mind this list is not necessarily all-encompassing, but it does serve to help you keep your financial plan in mind, even during the busy holiday season. As always, check with a tax professional regarding any decisions which may impact your taxes.
Feel free to contact us with any questions or to schedule a meeting.
David Hanson & Carl Hanson, CFP®