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Year-end Financial Planning Tips


As crazy as it sounds, we are nearing the end of 2016.  It is officially the 4th quarter of the year, and so far it has been a better year than just about anyone predicted. 

There are a few things we need to think about financially around this time of year, some more than others depending on your age.  If you are over 70 and a half or will be by the end of this year, you need to start thinking about your required minimum distributions, or RMD’s, out of your tax deferred retirement accounts. There is a simple formula that you can use to calculate your RMD, or most custodians will do it for you.  If they don’t, simply go to the IRS site and use this worksheet to calculate your RMD.  In the most simple terms, it is your balance at the beginning of the year divided by a factor that is based on your age. You must take this by year end, it is not one of those things like IRA deposits that can take place up until tax time, so get on it soon. 

Speaking of taxes, take a look at any taxable trading accounts that you have and plan for some tax-loss harvesting.  Tax-loss harvesting simple means selling any investments that you have that have lost money and using those losses to offset any capital gains you may have incurred during the year.  For those of you that are having a year where you didn’t see much income, think about selling off any appreciated investments to take advantage of the low capital gains rates for lower income brackets.  For instance, if you are single and your income will be less than $37,650 in 2016, you will pay 0% in capital gains taxes.  If you are married and filing jointly, that income limit is $75,300.  Make sure you don’t buy the same security for 30 days, and that capital gain will never be taxed. 

With a little less than 3 months left in the year, you may still have time to sock away more money into your 401k at work if you can spare it.  For instance, if you make $100,000 per year, and are contributing 6% right now, you are on track to save $6000 in your 401k this year.  However, if you act quickly and change you withholding to 20% for November and December, you could save a total of $8800 this year.  You can always take that back down to 6% in January, or better yet, notch it up 1% to 7% savings for 2017.  Every dollar you save now will theoretically be worth more to you in retirement than a dollar you save later in your career. 

Lastly, think about putting together that budget you have been putting off forever.  This time of year tends to get very expensive for a lot of people, and no one wants to go into a New Year in debt.  Making a month by month budget through next December is a great way to avoid credit card debt.  If that is too much for you, like it is for many people, simply make a holiday budget.  Figure out where the money for Christmas presents is going to come from and decide where to cut back on your expenses for the next couple of months.  Maybe you can eat out a couple less times per month, or rent a movie instead of going to the movies.  For a family of 4, that can be a $50 savings or more!  Going into the New Year without holiday debt is a great way to keep yourself on the road to financial independence! 

I will revisit this list in December to remind people of the things that need to be done by the end of the year, but there is no harm in starting now!