Year-End Financial Check-Up

December 20, 2016 | by James Behr Jr & Christopher Paleologus

As we approach the end of the year there are a few financial moves you can make that will help you manage your savings accounts to ensure you are on the path to retirement. These include decisions you can make to help lower your taxes for the year 2016 and planning adjustments you may want to consider.

The first tip to help lower taxes for the year is to maximize your contributions to tax-deferred savings accounts if you have not already done so. 401(k) and Traditional IRA contributions are tax deductible and can lower your taxes for 2016. If your employer offers a 401(k) plan and will match any contributions you make, you should be contributing at least up to the match. The maximum contribution for those under 50 to a 401(k) is $18,000 which can be used as a tax deduction for 2016. If you are over 50, you can contribute an extra $6,000 known as a “catch-up” bringing the maximum contribution limit to $24,000. Contributing up to the maximum contribution limit in a Traditional IRA, which is $5,500 if you are under 50, can also help you lower your 2016 taxes and offers more investment flexibility than the majority of employer 401(k) plans. If you are over 50 you can contribute an extra $1,000 bringing the maximum contribution limit to $6,500.

Donating to a charity before the year’s end may also help you lower your tax bill for 2016. If you itemize your deductions when doing your taxes, you can claim a charitable contribution of $250 or more to a qualified organization if you have record of the transaction. The IRS allows you to deduct up to 50% of your adjusted gross income of cash contributions to qualified organizations. There are varying rules when reporting charitable contributions on your tax return and you should consult your accountant to see how it may affect your tax bill for 2016. We have written before on our blog about different charitable gifting methods that may benefit you.

Tax-loss harvesting, the selling of losing investment positions, can also help reduce your tax bill for 2016. Selling stocks, bonds, or mutual funds that have lost value before December 31st will reduce the taxes you pay on capital gains from winning investments. Losses must first be applied to investment gains but if you have losses, you may be able to use up to $3,000 to offset ordinary income. If you still have losses after applying them to capital gains and ordinary income for 2016, you are allowed to carry-forward the losses for use in future years until you use them all.

Annually reviewing your financial plan and goals allows you to be sure that you are on track to achieve your goals for retirement. Rebalancing your portfolios or consolidating your investment accounts are two things that help many people. If you have changed jobs and still have a 401(k) plan with your previous employer, you may want to consider moving that money into an already established Traditional IRA or opening one. We have written before about the many benefits of doing this on our blog. Reviewing these accounts can also help show areas where more planning is needed. To protect the savings you built up over the years, you will want to review your IRA beneficiaries and be sure to have a will in place in case anything may happen.


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