Financial Planning Checklist for the New Year
With only a few weeks left in this calendar year, your mind may be racing through lists of Christmas gifts, decorations, holiday parties, and year-end bonuses. Your carefully crafted plan for meeting your financial goals is by the wayside, waiting for January 2 to pick it back up again.
Stop for just a moment and consider a few end-of-year financial tasks to check off your list. No one wants to leave money on the table, and by ensuring you have covered these bases, you could be earning money back instead of watching it fly out the door. So sit down, create your list, and start checking it twice. Santa would approve.
1. Set up a meeting with your financial planner.This is an important first step: with your financial planner, review your accomplishments for 2016 and set goals for 2017. Believe in the power of goals and understanding how putting them down on paper can help you achieve them. If you have an accountant, check with him or her to see if deferring income or other tax breaks might be beneficial.
2. Consult with your accountant. Income before December 31 is taxable for the corresponding year, so in some instances, it may make sense to delay income to delay the tax. For instance, if you bill clients monthly, your accountant might ask you to consider waiting to bill until the following year. Or if you have funds available, reduce your tax liability by prepaying property taxes.
3. Check your W4. If you have experienced a major life change (marriage, children, or divorce) in this calendar year, you need to update your W4 with your employer. In general, it’s better for you to have your money in hand than to control than to let the government take out an interest-free loan on your money and then give you a large refund.
4. Check on your emergency fund. If you thought to yourself, “What emergency fund?” you have work to do. It’s critical to give to yourself a fund that would cover at least three to six months of expenses. Ideally, in a low-risk, easily accessible account.
5. Roll Over Your Old 401(k) into an IRA. If you are no longer employed with the company that has your 401(k) investments: take control. You may even be paying an extra layer of fees if you left your employer. Did you know that you can move your retirement account, transfer it, or roll it over into a beneficial IRA to capture numerous tax advantages regarding your distributions? Name your spouse, your children, or your grandchildren as beneficiaries on your IRA, and then they can pay the taxes over their lifetime.
6. Max Out Your IRA and/or Roth IRA Contributions. If you’re younger than 50, you may contribute $5,500 each year toward either a Traditional or Roth IRAs. If you’re 50 and older, the number increases to $6,500. You may withdraw money from either without penalty for various reasons, including higher education, some medical expenses, and a limited amount toward the purchase of your very first home. You may contribute into a traditional IRA up until April 15th of the year following the year for which you are filing taxes. To clarify, if you want to receive the deduction for your 2016 taxes, you have until April 15 of 2017 to contribute. For a Roth IRA, however, you will not receive a deduction, but you will not pay a tax upon withdrawal as long as your money has been invested for five years.
7. Donate to charity.For all charitable contributions to count toward your tax return this year, Dec. 31 is the deadline. Many organizations make it easy for you to donate online, which offers the added benefit of a quick and easy receipt. Per the IRS web site, household items quality for tax deduction, include furniture, furnishings, electronics, appliances and linens. Clothing and household items donated to charity generally must be in good used condition or better to be tax-deductible. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return. Also, donors must get a written acknowledgement from the charity for all gifts worth $250 or more. It must include, among other things, a description of the items contributed.
8. Make 529 plan contributions. What is a 529? Section 529 college savings plans are established by states designated by the Internal Revenue Code as “qualified tuition programs” through which individuals make investments toward accumulating savings for qualifying higher education costs. A 529 Plan is a great way to save for college and gain tax benefits; it allows you to save for college while your money grows tax-deferred. One advantage to the 529 Plan is that there is no minimum annual contribution required.
9. Maximize your gift allowance.Those with large estates – and in turn, the potential for larger estate taxes – might consider maxing out their gift allowance, which is $14,000 per person or $28,000 per couple per year to an unlimited number of people. There is no tax deduction, but it helps with their federal and state estate taxes later. Grandparents or other relatives with extra disposable income can also pay college tuition directly to the school; in this instance, the money doesn’t apply toward the $14,000 gift allowance.