The holiday season is around the corner, and with the busy days ahead, 2018 will be here before you know it. Amidst all the action, we understand how easy it is to wait until the New Year to consider financial changes. But taking a few steps now could help you reduce your tax liabilities and start January on a stronger financial foot.
Below are seven easy financial moves you can start making right now to improve your financial situation before the end of the year and into 2018.
1. Make Charitable Donations
Giving to nonprofits you care about can be a powerful way to share joy during the holiday season while benefiting your financial life. Make donations before December 31, so you can apply them to your 2017 tax liabilities. And remember that you can give more than just cash. If you donate appreciated securities, buy tickets to charity events, or give goods to a qualified charity, your gift may be tax deductible.
2. Use Your FSA
A flexible spending account (FSA) can make paying for healthcare more cost efficient, but the funds typically have a set shelf life. If you have an FSA, you probably are unable to carry over any remaining balance to 2018. Verify the deadline for using the funds in your account, and make sure you spend them in time. From new eye-wear to dental procedures, consider what healthcare expenses you might have and use your FSA money before your annual deadline.
3. Max Out Retirement & Health Care Savings for 2017
Take a moment to take stock of how much you've already saved this year and whether you should be making any special moves to maximize your contributions to accounts like your 401(k), 403(b), 457(b), IRA, and HSA before year-end.
There are some limits and deadlines to consider here, so let's walk through them quickly.
- 401(k) - The most you can contribute to your 401(k) , 403(b) or 457(b) in 2017 is $18,000, and you have until December 31 to do so.
- IRA - The maximum IRA contribution for 2017 is $5,500, and $6,500 if age 50 or older, though there are some limits depending on your income. And while you have until April 15 of next year to make those contributions, it's a good idea to at least have a plan in place now.
- HSA - Don't forget about a health savings account, which is quite possibly the best investment account around! A family can contribute up to $6,750 for 2017 while an individual can contribute up to $3,400.
- If you're self-employed or even freelancing on the side, think about opening a retirement account through your business. That extra savings can be really powerful. For more information, follow this link to our website about Retirement and Tax Planning for Small Business Owners.
4. Maximize 2018 Retirement and HSA Contributions
The easiest way to reach financial independence as soon as possible is to save more money. Nothing else you do will have as big an impact. The IRS has announced an increase to 401(k) contributions for 2018 to help you save even more.
Here's a little cheat sheet you can use to set up automatic contributions that max out each of your tax-advantaged investment accounts:
- 401(k), 403(b) or 457(b) Employer Plans
- 2018 annual max: $18,500
- Monthly: $1,541.67
- Per paycheck (26 paychecks): $711.54
- Per paycheck (24 paychecks): $770.83
- Age 50+ per paycheck is $942.30
- Traditional or Roth IRA
- 2018 annual max: $5,500
- Monthly: $458.33
- Per paycheck (26 paychecks): $211.54
- Per paycheck (24 paychecks): $229.17
- Health Savings Account
- 2018 annual max: $3,450 individual / $6,900 family
- Monthly: $287.50 / $575.00
- Per paycheck (26 paychecks): $132.69 / $265.38
- Per paycheck (24 paychecks): $143.75 / $287.50
5. Check Your Credit Report
Closely monitoring your credit report is more important than ever. In today's online world, identity theft can happen at any time. And the recent data breach at Equifax, which compromised the personal information of 143 million Americans, serves as an alarming reminder. Every year, you should check reports from all 3 credit agencies - Equifax, Experian, and TransUnion - to look for any activity you do not recognize.
6. Focus on the Family
If you're married, there are certain things that you and your spouse should be thinking about on the financial front. These are some of the items that may be on your punch list:
- If you have children, determine how much you'll need to save for future college expenses. If your'e a Maine resident, take advantage of the full NextGen College Savings 529 account match. Click here for more information on the NextGen 529 annual college savings grants.
- If you are caring for elderly parents, investigate whether long-term care insurance or life insurance can help.
- Purchase or review your life and disability insurance for yourself and your spouse.
- Start to plan how you and your spouse will time your retirement, including your Social Security claiming strategy.
- Review your beneficiaries and estate plan. The same changes that would trigger a review of life insurance should trigger a review of your will and other estate planning documents. This is simply to make sure that your family will always be cared for in the way you want.
7. Rebalance your Investments
There is a small amount of regular maintenance that helps keep your investments on track. Making sure your risk tolerance matches your financial goals by rebalancing your investments is one of those pieces.
Initially, you chose to invest in a particular way with a particular mix of investments. This much money in stocks, that much in bonds, etc. But over time the markets will move and that mix will naturally change. When the stock market is up, that part of your investment account will increase in value, and you'll have a bigger percentage of your money in stocks than you originally planned. The opposite is true when the stock market is down.
Rebalancing is how you bring everything back in line with your personal goals. It's simply the process of resetting your investments back to your original plan.
As 2017 comes to a close, ask yourself what financial milestone you would like to reach by the end of 2018. Perhaps you want to save more money, pay down debt, or fund college. Whatever your goal, start analyzing the daily choices you can make to help move you closer toward the finish line. With a bit of preparation and focus, you can strive to look back a year from now and feel proud of your new financial accomplishments.
If you have any questions or want to discuss how to advance your financial goals in 2018, we are always here to talk.
Kind regards,
David Hanson & Carl Hanson, CFP®