The end of the year is always a happy time for most people. There are holiday parties, family gatherings, and a slower time at the office. With a little planning and action now, you’ll be able to enjoy all those parties without worrying about financial items on New Year’s Eve. Here is a list of what to look over:
If you haven’t contributed the maximum and still want to contribute more money to your 401(k), you’ll need to contact your company’s payroll department and ask what steps are needed to increase your deduction starting with your next paycheck. If your employer allows a lump sum contribution you many want to redirect some or all your year-end bonus into your 401(k).
Withdrawals from IRA and 401(k) accounts are considered taxable income and may increase future taxes. If that is a concern, there is a way to avoid those income taxes. Owners of IRA accounts over age 70-and-a-half can make contributions directly to charity from their IRA. This is a powerful planning tool because it allows taxpayers to make qualified charitable distributions up to the $100,000 limit from their IRAs directly to a charity and to exclude that amount from income. Remember, no taxes will be paid on the distribution, and the income tax charitable deduction is not permitted for this amount.
Flexible spending account funds can also be used for many over-the-counter items like contact lens solution, pain relievers, diaper cream, medical devices like walkers and wheelchairs, and a host of other items.
The same use-it-or-lose-it rules applies to Dependent Care flexible spending accounts. A Dependent Care account allows you to defer up to $5,000 in 2018 to pay for qualified child care expenses. Some expenses that may qualify are preschool, summer day camp, before or after school programs, and child daycare.
A note: Before buying a 529 plan, you should inquire about the particular plan and its fees and expenses. You should also consider that certain states offer tax benefits and fee savings to in-state residents. Whether a state tax deduction and-or application fee savings are available, depends on your state of residence. For tax advice, consult your tax professional. Nonqualifying distribution earnings are taxable and subject to a 10-percent tax penalty.
A little year-end planning could put you on the path towards solid retirement and college planning and might help you save on your taxes. Take a few minutes to review your financial plan before the end of the year to see if you can take advantage of any of these year-end strategies.
Anthony N. Corrao is president, wealth management and director of corporate education at Manhattan Ridge Advisors. For more than 25 years he has helped families towards their financial goals by developing financial, educational, and retirement planning strategies.
The information is intended for informational purposes only, and is not intended to be a substitute for specific tax, legal or investment advice. Securities offered through First Allied Securities Inc., A Registered Broker Dealer. Member FINRA/SIPC. Advisory services offered through First Allied Advisory Services, A Registered Investment Adviser.