7 Financial Tasks To Complete Before The New Year

In the blink of an eye, another year is coming to a close and a new one ready to begin. There are so many wonderful things to look forward to at the end of the year from parties to family gatherings to traditions but in the midst of the holiday celebrations, it is important to take some time to prepare your finances for the new year. 

By prioritizing the health of your finances, you will set yourself up for success in the new year. Today, we are going to look at 7 tasks to complete before the new year. 

1. Take your RMDs

If you are 70 ½, it is important that you take your required minimum distributions from all of your qualifying accounts (401k, IRA). Should you neglect to take them or not withdraw enough by December 31, the IRS will issue a 50% penalty on the money that should have been taken out. This penalty could really hurt as the distributions will also be taxed at your ordinary-income rate. 

Remember, each account has a separate RMD, so if you have a 401(k) and a traditional IRA you would need to take your RMDs from both accounts. The only account that does not have RMDs is a Roth IRA. An inherited Roth IRA, on the other hand, does have required distributions for beneficiaries.

Many retirees look for ways to reduce their RMDs as long as possible to mitigate their tax bill and one strategy to look into is donating all or a portion of your RMDs to charity through a qualified charitable distribution (QCD). With a QCD a contribution is made directly through a traditional IRA to the charity of your choice. The money isn’t taxed which allows you to lessen your tax bill while making a bigger impact on a cause you care about. 

2. Remember your HSA and FSA

If you have a health savings account (HSA) be sure you have contributed the maximum amount possible. For 2019, that is $3500 for single filers and $7,000 for those who are married and filing jointly. 

Your HSA is a wonderful savings tool for healthcare-related spending. With this account, you are able to contribute with pre-tax dollars, let the investment grow tax-free, and withdraw the money tax-free as long as it is used for a qualifying medical expense. An HSA is a great strategy to save for future medical costs as the funds roll over year after year. 

A flexible spending account (FSA) differs from an HSA in one key way: the funds expire at the end of each year. With an FSA, you will need to be more strategic about contributing money into the fund, because each year the funds expire and you will need to start over. If you have some extra money in your account, perhaps now is the time to get a new pair of glasses or contact lenses, no matter what it is you purchase just sure your money isn’t going to waste.

3. Max out your 401(k)

Saving for retirement is one of the biggest financial goals you have. With dwindling pensions and the shaky legs of Social Security, reliance on personal savings is higher than ever before. A great way to both maximize your retirement savings and saving you some money on your tax bill is to contribute the maximum amount to your 401(k) which is $19,000 for 2019. If you are 50 or older, you are also eligible for a $6,000 catch-up contribution, totaling $25,000. 

Putting money toward your 401k will reduce your overall income for the year, therefore lessening your tax burden. If you can’t put the maximum amount of money into the 401k, do your best to get as close as possible to that number. 

4. Check-in on your investments

As the year ends, it is a great time to look at your investment channels and see if you will need to rebalance your portfolio. Keep your risk tolerance and financial goals in mind as you examine this. If you are closer to retirement, for example, you may want to sell off more assets in the coming years. Be sure to look at where you are at in your life and how you want to move forward. 

5. Assess your debt

Creating regular check-ins regarding your debt will help you with your plan to pay it down. Take a look at the debt you still have and what measures you have taken and want to take in the future. Are you in credit card debt? Is your student loan payment still hounding you month to month? Be sure you know the type of debt you have and work with a financial advisor to help you make a plan to get rid of it. Living debt-free might be the anomaly, but it is something to work toward. With a strong plan and drive to stick with it, you will set yourself up for success.  

6. Automate where you can

Automation is a wonderful addition to your financial strategy, It can help ensure that your bills are paid on time which will help your credit score while also improving your saving strategy with automatic contributions. By finding the places in your financial life to automate, you will take some of the pressure off of you to remember payments and contributions each month. 

7. Set new goals

The end of the year is a great time for reflection. It gives you the space to see what has been working and what needs to change. Take some time at the end of this year to evaluate your financial goals. What were you able to accomplish, and what is still left to do? Are you on track to reaching your goals? What roadblocks stood in your way and how can you work to change that in the new year? By proactively looking at your goals you will be better able to set new ones and attain the ones you already have. 

There are so many things to do in order to ready your finances for the new year. The most important thing is that you take the time to get your finances in the best shape possible to start the new year off right. Are your finances ready for January? Schedule a 15-minute call, we would love to work with you!