Holy Cow, it’s already December! Did the first eleven months of 2017 just breeze right past you? We thought we would share a list of our top ten tips to finish out the year financially strong. In light of some changes that MAY be on the horizon with tax reform, you may want to consider doing some special things this December that you may normally not do.
The first 5 tips are related to benefits you probably get from your day-job:
- Use it, Don’t Lose It! – If you are contributing to a Flexible Spending Account (FSA) this year, be sure you know the year-end rules for your plan. Employers can set up FSAs with different provisions. You may need to be sure that you use your FSA money by December 31st or lose it. Two other options may be that you can roll-over up to $500 (if it’s a Healthcare FSA) into 2018 or you may have up to March 15th in what’s called a ‘Grace Period’ to use your 2017 funds. Plans can allow either of these alternatives, but not both – so check your plan materials or email HR if you aren’t sure. With an FSA, you risk forfeiting unused money.
- Considering Funding More To Your HSA – If you participate in a Health Savings Account (HSA) and you weren’t able to put the maximum amount in this year due to other priorities, but you find a little extra money at the end of the year – you could contribute directly to your HSA provider. The downside to this method is that you don’t get the FICA reduction (1.45 – 7.65% depending on your earnings level) by contributing through payroll deductions, but you may still have time to fill up that valuable tax-advantaged space. The limit for 2017 is $3,400 for individuals, and $6,750 for family (any combination of two or more people) plus an extra $1,000 if you are over the age of 55. You must have a qualifying high-deductible health plan to take advantage of an HSA but you have until the tax filing deadline to establish one. Did you also know that you could perform a one-time qualified distribution to fund your HSA from a Traditional or Roth IRA? You can only do this once in your lifetime under current rules and the distribution is not included in your income, is not tax deductible, and also reduces the amount you can contribute to your HSA yourself that year.
- Check Your Vacation Balance and Rollover Policy – Be sure you won’t be forfeiting any vacation or PTO hours. Find out the rollover limits for your employers paid-leave plan and if you are in danger of losing any hours, get your requests in stat! If your employer allows you to donate time to a bank to benefit other employees in need in lieu of forfieting, you may want to consider that if you can’t use the time up yourself.
- Maximize Your Health Care Benefits – If your health care coverage plan year begins anew each January, your Annual Deductible and Out-of-Pocket Maximum are about to reset on January 1st. Are there additional appointments that you’ve been putting off that you can squeeze in before December 31st? How about prescription drugs? Are you stocked up for maintenance medications? Can you get a 90-day refill in before the end of the year? This may especially be helfpul to you if your plan is signficantly changing for 2018. While you are at it, be sure that you’ve had your annual checkup and all the preventive care that is age appropriate for you. All plans (unless they are grandfathered) cover preventive care at 100% (even on a high-deductible plan) so there is no reason that each family member shouldn’t have an annual checkup which can help detect early signs of illness and disease.
In the next section, we deal with tax mitigation strategies. Although the Senate and House have both passed versions of Tax Reform bills, the final rules have yet to be hashed out. Keep an eye on these developments so you know how the changes will effect you in 2018. Below are a few ideas of things you MAY want to consider depending on your income level, how and what you itemize for deductions for federal income taxes today, and whether or not you own a home with a mortgage.
5. Get a Handle on Your Charitable Donations! This is a big one because if the proposed changes go through which will increase the standard deduction in 2018, far fewer of us may be eligible to itemize our deductions in 2018. Here are a few things that relate to charitable donations that you may want consider right now.
- If you’ve made donations earlier in 2017, round up your reciepts so you are ready for tax filing season.
- Consider whether making additional contributions before December 31 may be a good idea for you while they are deductible for your taxes in 2017 (if you itemize).
- If you have a substantial amount to donate, consider opening a Donor Advised Fund (DAF) which we did recently to lock in those deductions. With a DAF, you can take your time to decide who to distribute the money to in the future, but take the deduction now. Read more about this here.
- Does your employer have a donation-matching policy? If so, you could double the value of your donations to charities you care about.
6. Prepay Your Mortgage Interest and/or Property Taxes. This may not be possible or even adviseable for some of you, but could you prepay your January (or maybe even additional) month’s mortgage interest and/or property taxes in December in order to maximize your itemized deductions in 2017? Be sure to check with your mortgage holder and/or taxing authority for rules about payments and know how they will apply the funds received so you are clear on the rules.
7. Fill Up Your Deductible 529 College Savings Space. If you are saving for your child(ren)’s college fund, did you save up to the deductible limit for your state? Here in Maryland, each parent can save up to $2,500 per kid per year in both the Investment-style 529, and also the pre-paid 529-style accounts. So between us, we could in theory save up to $10,000 per kid. Given our current state tax burden of 8%, this could reduce our state tax bill by $800 for each child. Rules are different for each state. Plus some states don’t provide a tax deduction or even have state tax income taxes – so know your state rules. Also, if you are currently paying for tuition like we are, there is no reason you should stop making contributions to the 529 if you enjoy the state tax benefit. You can both contribute and withdraw funds from the same account in the same year.
8. Contribute the Max to Your 2017 IRA(s). If your income level is below the annual caps, be sure that you contribute to an IRA for yourself and your spouse (if you have one). In 2017, the contribution limit is $5,500 for either a Traditional IRA (deductible) and/or a Roth IRA (not-deductible) combined. Plus, there is a catch-up provision which allows you to contribute an extra $1,000 if you are age 50+ by December 31st. Note, that if you are eligible for a work-place retirement plan like a 401(k), you cannot take a deduction for a Traditional IRA but you may be eligible to make a non-deductible Roth contribution if your income is under $118,000 (single) or $186,000 (if Married Filing Jointly). With IRA contributions, you have until the tax filing deadline to make IRA contributions. So you have some time in early 2018 to decide if Traditional or Roth IRA make sense for you (especially if you want to mix and match them like we wrote about here to take advantage of the Savers Credit (low income needed)).
9. Is It Time to Sell Some Winners/Losers? Smarter people than us have written extensively about Tax-Loss Harvesting Strategies. We just wanted to mention that you may want to consider selling some investments for a variety of reasons as we near the end of the year. One strategy may be for tax-loss harvesting, but another strategy may be simply to re-balance your portfolio now that the market as had such a wild ride this year. Perhaps your portfolio is now way out of wack from your ideal blend of investments and you need to get them back in line with your targets. Pay attention to the effect of Capital Gains. You’ll pay higher taxes on Short-Term capital gains for investments you’ve held for less than one year, and lower taxes on those that you’ve held for longer than one year (Long-Term Capital Gains) in taxable accounts. If your income is low enough in 2017, you may pay no taxes on LTCG but the highest taxes are 20% if you are in the higher 2017 federal income tax brackets.
Our last tip has nothing directly to do with your employer or your taxes – it’s all about you and self-reflection.
10. Celebrate Your 2017 Sucessess and Start Planning for 2018! As the year draws to an end, take some time to evaluate how you did in 2017. We’ll be sharing our 2017 successes later this month.
- Were you able to stick to the majority of your financial goals? If not, what derailed you?
- What can you improve upon for 2018? Did your budget have some leaks that you can fill? Were you a little too loose with discretionary spending?
- How will your income in 2018 look as compared to 2017? Are there things you can do to find additional income?
- How have you taken charge of your family’s financial future this year? What new ways have you optimized?
- How are things going at work? Is it time to update your resume and put out some feelers in the market to see what else is out there?
What are you doing right now to end out the year with a bang? Tell us in the comments below.