With December 31st fast approaching, here are some important end of year financial moves to consider. This checklist is a perfect start to the new year.
The year just flew by, didn’t it? I know most of us are knee-deep in the hustle and bustle of holiday travel, gift buying, and closing out work projects. However, you also need to address a few very important financial items before the year comes to an end.
Here are eight tasks that should make their way to the top of your checklist for the end of the year.
1. Max Out Your Contributions
Now is the time to check your retirement account contributions for 2017 and ensure that you’ve maxed them all out, if possible. If you haven’t, be sure to send in any additional contributions before the end of the year.
Most important is your 401(k). If you plan to max out your contribution for this tax-advantaged account, you have until December 31 to do so. Here are the maximums for 2017.
Even if you don’t plan to hit your 401(k) contribution limit for the year, you should at least contribute enough to take full advantage of any match that your employer may offer. Failing to do so is simply leaving free money on the table.
If you plan to also max out your traditional or Roth IRA, you have a bit more time. The IRS will allow you to contribute to these funds, up to the annual limit, until the tax deadline next spring. Of course, now is a great time to figure out how much more you need to contribute. Then you can plan for those additional savings.
2. Financial State of the Union
Your year-end financial checklist should definitely involve a status check of sorts with your family. This is the time to sit down and talk about how you did this year and how you’re doing right now. Wrap up the conversation by focusing on what you hope to accomplish for the new year.
In this discussion, you should cover things like:
- Budget: What it was in 2017, whether your family held to it, methods of managing, and what the budget should be for 2018
- Savings rates: How much you hoped to save, how much you actually saved, and how that needs to change next year
- Cutting costs: Whether your family is overpaying for certain expenses (like utilities or things like cellphones and cable) and how to trim those down
- Debt: Where you were at the beginning of the year, what your goals were for stopping/paying off debt for 2017, whether those goals were met, and any new goals you’d like to set for 2018
- Big spending plans: Whether any large purchases are on the horizon (such as a new home in the next five years, a new car in the next two to three, or a planned child in the next one to two) and any changes you need to make to prepare (such as getting credit scores in order for a new mortgage or saving for a down payment)
Of course, each family’s situation is a bit different, but the idea is the same. This sit down is not just helpful; it’s imperative.
When you take the time to discuss money with your spouse and older children, you ensure everyone is one the same page. You’re also more likely to make real changes when you have numbers right in front of you.
It’s easy to talk throughout the year about vague financial goals like saving more money or buying a house. But these goals can easily get lost in the everyday chaos. However, sitting down for an hour each December to discuss the state of your finances can help you actually reach your goals. Look at how far you are from your dreams, your achievements and shortcomings from the past year. And the exact changes you need to make to meet your new goals.
Take the time to calculate your spending, gather records from the last 12 months, and analyze your expenses. Then, roll up your collective sleeves and tackle your 2018 financial plans as a family.
3. Use FSA Funds
Did you know that your FSA (Flexible Spending Account) is a “use it or lose it” kind of thing? That’s right: if you don’t spend that money on qualifying expenses by year’s end, you lose it.
FSAs are tax-free accounts for things like dependent (child) care and medical expenses. You can contribute up to a certain limit each year through your paycheck. In the past, all FSAs were use-it-or-lose-it; however, this changed slightly in 2014. Now, only dependent-care accounts always have this caveat. Other types of FSAs have options.
Employers can choose to offer their employees a rollover amount of up to $500 a year. If this is the case, you’ll be able to keep up to that limit in your FSA after year’s end without losing the money. You’ll still be able to contribute up to the maximum limit for next year, too, allowing your account to grow even more.
Other employers can offer a grace period of up to 2.5 months for their employees, allowing them a few extra weeks to spend that money on qualifying expenses.
Be sure to check which type of FSA you have, the balance in your account, and how much you have to spend in order to avoid losing your hard-earned cash. If you have a short period of time in which to use up that money, here are a few ideas to get you started.
You can also use this time to plan out your FSA contributions for next year. Did you run out of money in your account in 2017? Do you have upcoming medical expenses that you didn’t in years past? Were you stuck with extra savings that you had to scramble to spend before losing the funds?
If so, adjust your FSA contributions for 2018 accordingly.
4. Modify Your Tax Withholdings
While it can be nice to get a big, fat check each spring from the IRS, it’s not so nice to know that you also gave Uncle Sam an interest-free loan for the year. (He wouldn’t return the favor, I assure you.) So, if you are getting a significant tax return each year, it’s time to adjust your withholdings.
Ideally, you would file your taxes each spring, either oweing or being owed just a few dollars. This means your employer withheld the right amount of money from each paycheck. So you aren’t subject to penalties from the IRS, and they weren’t holding your money interest-free for the entire year.
You can do this by looking at tax rates for the next year, your expected income and credits, and any planned deductions. Here’s a look at a great withholding-adjustment guide, as well as a link to the IRS’s withholding calculator.
Then, once you’ve changed your tax withholding and are keeping more of your own cash throughout the year, put it to work for you. Invest that extra cash, use it to pay down debt, or build your savings. You won’t get to enjoy that April direct deposit from the IRS, but you’ll also make your money work for you all year long.
5. Put Your Foot Down on Debt
Are you up to your eyeballs in student loan or credit card debt? This time of year is probably stressful for you, as it’s likely the season during which you spend the most. Between gifts, travel and your usual expenses, it’s easier to dig that debt hole even deeper (unfortunately, you’re not alone).
However, now is the perfect time to put your foot down on building up debt and make a solid plan for digging your way out. If you haven’t budgeted enough for the holidays, perhaps this is the year to spend a little less.
You can look into ideas like homemade gifts, gifts of service, or even experiences instead of consumer purchases. Your family could opt for a white elephant-style gift exchange, rather than everyone buying something for each person. Or, you could just shop for less-expensive gifts and stay under budget.
No matter what, this could be the season that you don’t rack up the credit card debt with gifts and travel. Let your year-end goal be the end of new debt, and a plan to get out of debt as quickly as possible, starting in January.
6. Enroll in a Healthcare Plan
If you haven’t already signed up for a healthcare plan for 2018, you only have a few days left to do so! This year’s deadline for open enrollment in the Healthcare Marketplace is December 15.
If you don’t sign up for a new plan that suits your family’s needs or re-enroll in your existing plan that you’re happy with, you could leave yourself in a bad situation. Higher premiums, a plan that doesn’t provide the services that you need most, or even a lapse in coverage could all be costly consequences.
7. Check in on Retirement Savings
We already talked about checking on your retirement contributions and maxing them out before the end of the year, but this is also a great time to look at the big picture.
Whether you have a financial planner or do your own retirement forecasting, the end of the year is the time to look at what you’ve accomplished thus far.
Analyze whether your retirement plans are the same or if they have changed. Has your income shifted in either direction, or have your assets taken a surprising turn? Do you still plan to retire around the same age you’ve been planning thus far, and, if so, do you still think the same amount of money will be required to do so?
Using a retirement calculator (or your financial planner), revisit all of your goals and what you’re doing to reach them. Then, adjust your savings and/or investments accordingly in 2018.
8. Maximize Deductions
There are a few key deductions that you may want to take for the 2017 year, and this last stretch is the time to max them out.
These include things like giving to charity, selling investments for a loss, deferring end-of-year income, increasing business expenses, prepaying tuition, or even bunching up medical expenses. No, these things won’t necessarily help your budget for December. However, they will benefit (decrease) your taxable income for 2017, which you’ll appreciate when it’s time to file your taxes in the spring.
The new year is a great time for all sorts of resolutions and new starts. By taking the time at the end of this year to get your finances in order, analyze how you did in 2017, and make plans for 2018, you’ll ensure that the next year is the financial best it can be.