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Sprucing Up Your Year-End Finances

Financial Planning

Whether you are nearing retirement, steady in the workforce, or fresh into your career taking inventory of your finances is a great way to prepare for the new year. Assessing your financial successes and pitfalls of this year will be able to help guide your decisions and propel you forward into 2019.

Consult the list below to ensure your financial housekeeping is up-to-date.

1. Have you maximized your retirement savings contributions?

December 31 marks the last day that you can contribute to your 401(k) or other workplace retirement accounts. Even if you have contributed regularly, see if you are able to put in the maximum amount ($18,500 for 2018) in order to reduce your income tax bracket level. By adding additional funds to your 401(k), you will not be responsible for paying taxes on that money until you withdraw it, which is a big help come tax time.

When was the last time you contributed to your individual retirement account (IRA)? Now is a great time to look into that and keep the cash flowing. The contribution limit for 2018 is $5,500 if under 50 and $6,500 if over 50. This contribution can significantly impact your tax bracket while helping you reach your savings goals.

Do you have a health savings account (HSA) through your work? If so, check in on it to see how much you have contributed this year. You are able to put in $3,450 as a single person or $6,900 per family and the tax benefits are incredible. The money you contribute is tax-deductible, it grows on a tax-free basis, and, if withdrawn for medical purposes, using the money is also tax-free. Health savings accounts also roll over each year so you can continue to grow money in your account year after year.

2. If retired, be sure you have taken your required minimum distribution (RMD).

I cannot stress the significance of this step more. Retired people who have reached the age 70 ½ must withdraw their required minimum distribution from their retirement accounts (401(k) or IRA). If that does not happen, the IRS will instate a 50% penalty on the amount of money you should have withdrawn. Not only will you be hit with a massive penalty, but due to the nature of the 401(k) and IRA distribution rules, any money that you withdraw will also be subject to income tax.

Luckily, if an error does occur there is a way to rectify it. The IRS can waive the 50% fee if the case has “reasonable error.” Once you recognize the problem, take the RMD out of the necessary account and fill out a 5329 tax form which can be found electronically on the IRS website. Many advisors recommend you also attach a letter detailing the mistake and why it happened. While there is no guarantee your money will be safe, there is a chance if you follow the correct protocol.

3. Assess your net worth.

Net worth can be an intimidating number for many people. But calculating your net worth is actually much simpler than you might think: your assets - your liabilities. Your personal net worth is good to know because it gives you a candid look at your financial situation and lets you know where you are at with your goals. Figuring out your net worth statement might look something like this.

Assets

  • Bank account balance
  • Home equity
  • Investment account balance
  • Car ownership
  • Personal property
  • Insurance value

Liabilities

  • Student loan
  • Mortgage
  • Car payment
  • Credit payment

This is a great time to look at the health of your investment portfolio. Which assets are appreciating, and which are not? For the ones that have lost value, consider claiming capital losses on those to help you this tax season. As long as you sell the stock by December 31, you will be able to claim that investment as a loss on your taxes. This capital loss can then be used to help offset any capital gains tax you are required to pay on the assets that gained you money.

4. Gather tax documents.

Tax season is right around the corner and having your paperwork organized will save you time, money, and stress. Your necessary documents may change year-to-year if you have moved, gotten married/divorced, lost/gained a dependent, or changed employers. Here is a list of documents you will need.

  • Social Security numbers for yourself, a spouse, and any dependents
  • All W-2 or 1099 forms for all income generating channels
  • All income sources (business, investments, unemployment, etc.)
  • Any tax-deductible items/expenses
  • Bank account numbers

For a complete list, check out the IRS website.

5. Set 2019 financial goals.

Are you tantalizingly close to paying off your student debt or ready to double down on maxing out your retirement accounts or just looking to dip your toes in investing? Now is the time to set new financial goals for yourself. 2019 is a new year full of promising possibilities. What are financial milestones you would like to embark on?

This is an exciting time. It is a chance for you to settle debts, start fresh, and push forward with your finances. I encourage you to set concrete, tangible goals for yourself in order to give you more momentum.

6. Talk with a Financial Planner.

Finance is a world of its own and often times can be confusing and stressful to take on by yourself. A CERTIFIED FINANCIAL PLANNER™ is there to be in your corner and help you reach your financial goals. If you are looking for some advice to take your finances to the next level before the end of the year, give us a call. December 31 will come much faster than you think, and we would love the opportunity to help you make 2019 the best year yet.