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Your year-end financial to-do list

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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:

Review your 401(k) contributions

If you participate in a 401(k), the 2018 maximum contribution limit is $18,500; if you’re age 50 and older the maximum contribution is $24,500. You have until Dec. 31 to make the contribution to your account.

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).

Take your required minimum distributions

Once you reach age 70-and-a-half, you are required to take a distribution from your IRA, 401(k), and other types of retirement plans by Dec. 31. The only exception to this is the year you turn 70-and-a-half, because you’re given an extension until April 1 to make your first withdrawal. Another exception is if you are still employed at this age. If you are still working, it isn’t necessary to take the distribution from your employer’s 401(k). Missing the distribution deadline, if you are eligible, can lead to penalties that are quite large. Although there are mechanisms to request the penalty be waived, the amount not withdrawn is subject to a 50-percent excise tax. If you haven’t taken your distribution yet, contact your financial advisor or 401(k) administrator and take the distribution before the deadline.

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.

Make tax-effective charitable gifts

Making a gift before the end of the year can increase deductions if you itemize your deductions. Consider gifting highly appreciated stock instead of selling the stock and donating cash. If highly appreciated stock is donated to charity before Dec. 31, you get a deduction for the full value of the contributed stock and avoid paying capital-gains taxes on the increase in value since you’ve owned it.

Check the deadline for withdrawals flexible spending account

Most flexible spending accounts are use-it-or-lose-it accounts, meaning if you haven’t spent all the funds in your account by Dec. 31, you may forfeit whatever money is left in the account. So, before the end of the year, check to see if there is a balance in the account and make that doctor or dentist appointment, or buy the new glasses you may have been putting off.

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.

Contribute to a 529 college-savings plan

For most people, 529 accounts are an excellent strategy to save for college tuition. They allow the beneficiary of the account to use the money tax-free for college tuition, room and board, and fees. In some states, a state income tax deduction is available for your contribution. Most states require the contribution be made by Dec. 31 in order to get the state tax deduction.

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.

Posted 12:00 am, December 16, 2018
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