You probably have plenty to do at the end of the year, from holiday parties to family visits. Even so, it is a good idea to set aside time for financial planning. The money moves you make at the end of the year can have an impact that lasts well into the New Year and beyond.
Top off your retirement funds
If you have not yet reached the maximum annual contribution to your company 401(k) or 403(b), or your personal IRA, the end of the year is the perfect time to top up those savings. Putting extra money into your 401(k) or IRA can reduce your tax bill while helping you save for the future.
And if you want to help invest in others as well, consider putting some cash into an educational fund for you child. U.S. law allows for two kinds of tax-free education account: Coverdell Education Savings Accounts and 529 plans also known as qualified tuition plans. Your Credit Union offers a Coverdell plan. Learn more here.
Give to your favorite charity
Many people tend to donate to charity during the holidays. Aside from the assistance you provide, the tax deduction you receive is a great bonus. You can give cash to your favorite charity, but if they accept it, you might consider donating the gift of appreciated stock. With appreciated stock, you can avoid the capital gains taxes that would otherwise apply.
And don’t forget, if you’re donating clothes, furniture and household items, make sure to get a receipt for tax purposes.
Start a dummy tax return
As the end of the year approaches, start a dummy tax return using the figures you have on hand. This way you’ll know approximately what you can expect to owe, or how big a refund you might receive.
Use your most recent pay stub to estimate your total wages and tax withholding for the year, and your bank statement can substitute for any 1099 documents you expect to receive. Running the numbers ahead of time gives you the chance to make last minute adjustments to help you save, like adding money to an IRA or starting a health savings account.
Also consider starting (for next year) a tax savings account to cover any quarterly or end-of-year tax liabilities you might incur. This buffer against the tax man not only gives peace of mind, but if you don’t use it all you’ll have a nice year-end “bonus.” The Credit Union has a handy Tax Saver account that grows with healthy interest and allows four free withdrawals a year.
Prepare For Next Year
It’s a good idea to look at next year’s needs, especially if you expect your financial goals or situation to change – such as buying a new house or thinking about college for the kids. Making sure your budget reflects this is something you can think about now. Your Credit Union offers an easy and effective expert budgeting tool for just this purpose. Also consider taking our free Financial Wellness Check – a relaxed review of your financial circumstances and goals that will help you find low-hanging opportunities to save and earn more. Learn more here.