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Money Moves to Make Before Year-End

Insights Next Generation Investment Basics Portfolio Management

Before you pop open any champagne for New Year’s Eve, make sure that your money is ready for 2018. Sure, there are important financial housekeeping tasks that you can tackle at any time of the year like checking your credit reports or repricing your car insurance, but December 31 only comes once a year, and there are many key financial deadlines to meet before then

Check your retirement contribution rate and allocations to see if everything is on track.

All 401(k) contributions for 2017 must be done by 12/31. Even if you contribute regularly to your traditional 401(k) or similar workplace retirement plan, see if you can contribute more and up to the max by December 31. You may be able to reduce your earned income by $18,000, the maximum you can contribute to a 401(k) for 2017 - a potential $4,500 tax savings if you're in the 25% tax bracket. If you're age 50 or older, you can contribute an extra $6,000, for a maximum contribution of $24,000.

And you won't pay taxes on any money—or the money it earns—until you withdraw it.

If you contribute to a Roth 401(k), you won't get a tax break this year, but your money can grow tax free and generally be withdrawn tax free in retirement. Either way, the more you contribute now, the better odds you have of reaching your goals.

Tip: Now is also a good time to review your account allocations to be sure your portfolio is weighted appropriately according to your goals and risk tolerance. If you aren't sure or would like a second opinion, we offer this service for free.

No 401(k)?

You may be able to save for retirement and reduce your taxable income by contributing to a traditional IRA this year. In 2018, you can contribute up to $5,500 if you are under 50, and $6,500 if you are 50 or older. You don't need to have a job to contribute to an IRA if you meet the few IRS exceptions. A nonworking spouse can contribute to an IRA up to the contribution limit, as long as his or her spouse has as much or more in taxable income. Alimony is also considered income, so a nonworking person receiving alimony may also be able to contribute to an IRA.

Self-employed individuals have even more options. Are you freelancing, or running your own business? With a SEP IRA, you can contribute up to $54,000 or 25% of your eligible income, whichever is less, before taxes. Like a traditional 401(k), the money can grow tax deferred, but is taxed as ordinary income at withdrawal.

HSAs can also be savings vehicles.

If you have a health savings account (HSA) associated with a high-deductible health plan, see if you are contributing the max in 2018: $3,450 for an individual and $6,900 for a family, plus an extra $1,000 if you are age 55 or older. An HSA has triple tax benefits: Your contributions are made with pretax dollars, so you reduce your current taxable income; earnings are free of federal tax; and so are withdrawals, if they're used to pay for qualified medical expenses now or in retirement. Plus, this is not a use-it-or-lose-it account; what you don't spend can be invested, and will grow over time to help pay for future expenses.

Consider charitable giving.

If you itemize your taxes, donating to charities from a taxable account can reduce your tax bill. This is particularly true if you can contribute appreciated securities you have held in your account for at least a year. Doing so not only entitles you to a tax deduction (assuming you qualify), but also allows you to help eliminate the capital gains tax.

For non-cash contributions over $250, you'll need a receipt that includes a description of the item and other details. Donations for the current tax year must be made by December 31. If you charge your gift to a credit card before the end of the year, it will count for this year, even though you might not pay the credit card bill until 2018.

Tip: You might also consider a donor-advised fund which allows you to contribute and take a tax deduction the same year. You can then recommend grants immediately or over time to virtually any IRS-qualified public charity.that we can help set up. Please let us know if you are interested in more information.


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