9 Financial Steps to Take Before The End of 2018Submitted by Castlebar Asset Management on November 27th, 2018
With the end of the year quickly approaching there are still a few things you can do to help your financial situation before the new year. Here is a quick list of items to look at this year which will give you a boost in 2018 and get your 2019 off to a great start.
Check your payroll withholding. The tax cuts that came into effect this year took a little while for payroll software providers to get updated. We are seeing that many of our clients have under withheld from their paychecks for taxes. If you are concerned feel free to send us a recent payroll stub and we can run a quick estimate for you or you can reach out to your CPA or tax preparer. There is still time for you to do an extra withholding from your paycheck or make sure your savings is in a good place in case you owe in April when taxes are due.
Bump up your 401(k) contribution: We like to nudge our clients to increase their 401(k) each year until they either reach the maximum contribution level or their target level for their retirement goals. If you have room to spare before you hit the max, think about increasing your 401(k) contribution by 1 or 2% this year. You’ll benefit by saving a little more this year and setting yourself up to save more for all of 2019.
The maximum contribution is increasing in 2019 for 401(k)s. You can now contribute a total of $19,000 (up $500) to your 401(k). The catch up contribution is still $6,000. If you are over 50 you’ll be able to contribute a total $25,000 in 2019. It is a good time to make a quick calculation on your 401(k) to see if you need to adjust your contribution amount, especially if you have been contributing the max for a few years.
IRA max contributions are increasing: Like 401(k) contributions the maximum you can contribute to an IRA is increasing by $500 in 2019. You will be able to contribute $6,000 to a Traditional IRA or Roth IRA. The catch up contribution, if you are older than 50, is still $1,000. The rules for Back Door Roth IRAs have been clarified so it is a good time to make your 2018 and 2019 contributions!
Don’t forget to make your 529 contributions: Contributions to a 529 college savings plans have to be made before 12/31 to count for 2018. 529 plans received a boost from the new tax laws. You can now use 529 plans to pay for K through 12 education expenses. If you are sending your children to private schools and are not taking advantage of this you are leaving some tax savings on the table!
Spend your FSA money: If you are contributing to an FSA at work you want to have a plan in place on how to spend your dollars in your account. The list of what you can spend your money on is long, but if you run out of time you can roll $500 over into 2019. Eye glasses, contacts, and vitamins are a go to for me each December!
Review your savings rate: Interest rates have risen steadily this year and you should be earning more on your savings. Check out what your bank's savings or money market rates are and compare them against what else is available. My bank's savings rate is still a measly 0.05% so I moved some of savings to an online bank that is paying around 2%. Still not a great rate of return but it is much better than we have seen since the financial crisis.
Rebalance your retirement accounts: After the market run over the past few years, there is a good chance your 401(k) and other workplace retirement accounts are out of alignment from your target investment allocation. The end of the year is a good time to revisit your investment allocation and rebalance your accounts back to your targets. Many 401(k) plans have a tool which will automatically rebalance back to your targets annually or quarterly. This is easy to turn on and will give you one less thing you’ll have to do next year!
Tax Loss Selling: The markets over the past few years have not provided a lot of opportunities to have losses because of their higher moves. 2018 has been choppy enough that you should take a look at your taxable investment accounts to see if you have any losses.
Charitable Giving Plan: Another change with the new tax laws has a direct impact on how much your charitable contribution will impact your taxes. The new standard deduction for married couples is $24,000 and a single person is $12,500. For many Americans, they won’t itemize their tax returns unless they have a large mortgage. It is now more important to have a plan when it comes to charitable giving especially if you are hoping to get a tax deduction. We are working with clients to stack their charitable giving into certain tax years when they will exceed the standard deduction. This can be making contributions for the current year in January and the following year in December. Your December contribution would be an early contribution for the next year. Also using a Donor Advised Fund is another tool being used much more under the new tax rules.
Addressing one or more of these items in the final weeks of 2018 will help finish the year on a strong financial footing. This is by no means an exhaustive list of items, but if you have any questions please feel free to reach out to us for help.
Disclaimer: The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.