With the holiday season in full swing, the New Year will be here before you know it. According to Google search analytics, one of the most popular New Year’s resolutions is to spend less and save more. With money described as the most pressing daily thought for 1 in 4 Americans, it’s not at all surprising that taking control of one’s finances is such a huge draw.
Between the parties and presents, now is the perfect time to take a look at your finances and correct your course, if need be, to set you up for financial success in 2018.
Increase Your Retirement Contributions
If you haven’t taken advantage of your employer’s 401k plan, do so – especially if your employer matches contributions. Under the age of 50, you can contribute up to $18,000 to your 401k; over the age of 50, you can contribute $24,000. Not only will this help toward your retirement, contributions also reduce your pre-tax income, which may decrease your tax burden in the next year.
If you’re already saving in a 401k or IRA, check out our decade-by-decade retirement planning breakdown to make sure you’re on track.
Evaluate Your Savings Strategy
Your financial outlook is never a fixed state. With each passing year, your income, spending and goals will continue to evolve. Use this opportunity to set a savings goal for the upcoming year. Even if it’s to save $10 a week, each dollar saved is a step toward financial stability. Check out these tips to stay on track with your savings, regardless of your life stage.
Have kids? Now is also a great to start saving in a 529 Plan. These qualified tuition plans help you save up for future college costs. In the state of Wisconsin, you can use 529 Plans to reduce your taxable income up to $3,140 per beneficiary per year and anything over that amount can be applied to the next tax year.
Check Your Healthcare-Related Savings Plans
If you have a high-deductible insurance plan, chances are you supplement it with a flexible spending account (FSA) or a health savings account (HSA).
If you have the former, take a look at what you have left in your account. FSAs are “use it or lose it,” meaning the balance doesn’t roll over to the next year. If you do have the available funds, there are many ways in which you can use up your balance before the New Year.
Unlike FSAs, any unused HSA funds can be rolled over and grown to pay for future medical expenses, so there’s no urgency to use it up before the New Year deadline. That said, take a look at what you currently have saved and consider maxing it out. Since contributions come from pre-tax funds, whatever you put in your HSA reduces your taxable income, which can decrease your tax burden. Plus, earnings and withdrawals (as long as they’re used for qualified medical expenses) are free of federal taxes. For individuals, you can contribute up to $3,400 per year, $6,750 for families, and $4,400/$7,750 for those over the age of 55.
If you itemize your tax deductions, charitable gifts of cash or goods are an easy source of deductions. So if you have those bags of old clothes hanging around that you still haven’t dropped off to the Salvation Army, it makes sense to do so sooner than later so you can collect those deductions for your 2018 tax returns.
Feeling extra generous and have the money? Alone, you can gift up to $14,000 in cash or assets tax-free to an individual – if you and your spouse are gifting together, that amount doubles. For instance, grandparents giving to their grandkid’s college fund or a parent giving their child a car. As long as the amount is under the aforementioned threshold, neither the giver nor the receiver will have to pay taxes on that amount. For more information on the Gift Taxes, check out this IRS FAQ.
Prepare for Tax Preparation
In case you haven’t noticed, a lot of these tips, in addition to just making good financial sense, are designed to get the most out of (and pay the least in) your taxes.
If you’re concerned about owing the IRS, you should talk with your tax and financial advisors before the closing of the year to find ways to save on your tax bill. Using a tax harvesting strategy, your advisor can help you offset your gains and losses, both long-term and short-term. Even if you’ve had a down year in terms of income, you can still take advantage of your lower tax bracket to do some of the financial housekeeping items like Roth conversions to reduce your tax burden.
Whether you plan on making the party rounds or settling in for a long winter’s nap, taking the time to work with your financial planner or personal banker to evaluate your finances now will help put you on firm footing going into the New Year and give you something to build on in the years to come.
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