10 Financial Steps to Take Prior to the End of 2016

It seems hard to believe that 2016 is almost over! While December can be a celebratory time of year as we enjoy the holidays and get caught up in the festivities, it can also be overwhelming for many of us. As we get ready to say goodbye to 2016, we may realize that we have not accomplished all our goals and we frantically attempt to squeeze in a few last-minute projects before January 1st rolls around.

Since your wallet definitely won’t be gathering dust this season, why would you let your financial considerations fall to the wayside? Below I’ve listed ten important financial steps you can take before we enter 2017.   Remember these are general rules so you need to see how these might impact your personal situation first.

1. Make the Most of Your Retirement Accounts

If possible, increase your contribution to your 401(k) by the end of the year to max out your retirement savings. Here are the general rules.  For 2016, you can contribute as much as $18,000 (or $24,000 if you are 50 or older). You may also consider contributing to a Roth IRA. For 2016, you can add as much as $5,500 (or $6,500 if you are 50 or older). Keep in mind that if your income is over $132,000 if you're single or $194,000 if you’re married filing jointly, you won’t be eligible to contribute to a Roth IRA.  As always consult with your tax advisor if you are unclear on how these rules might fit into your general financial situation.

2. Use Up Your Medical and Dental Benefits

Have you been planning to get a root canal, blood work, or other medical or dental procedure? Now’s the time to take advantage of all your health care needs before your medical deductibles reset. Dental plans, in particular, often have a maximum coverage amount. If you haven’t used up the full amount and anticipate treatments, make an appointment before December 31st.  Keep in mind that dentists are busy this time of year with patients trying to do the same thing regarding their deductibles, so it’s better to make that appointment as soon as possible.

3. Check Expiring Sick and Vacation Time

Depending on your company, your sick or vacation time might expire at the end of the year. Check with your HR department to learn about any deadlines. If your sick or vacation time does expire, and if you are able to work some time off into your schedule then fit in a last-minute vacation, a “staycation”, or trips to the doctor so you don’t lose this valuable benefit.

4. Use Your Flexible Spending Account

Some firms or institutions offer Flexible Spending Accounts {FSA}.  Like your health insurance benefits, you’ll want to use up your FSA dollars by year’s end. Your benefits won’t carry over and you’ll lose any unspent money in your account at the end of the year. Remember to check the rules for your FSA account to see what restrictions may apply

5. Review Required RMDs

If you are retired, review your retirement accounts’ required minimum distributions (RMDs). A RMD is the amount the Federal government requires you to withdraw each year from your retirement accounts, including 401(k)s, SIMPLE IRAs, SEP IRAs, and traditional IRAs, usually starting at age 70½. If you don’t, you may face penalties. To calculate your RMD, use one of the IRS worksheets or consult with your advisor who can assist you in calculating your RMD with your account custodians.

6. Stay on Top of Charitable Contributions

If you made a charitable contribution in 2016, you might be able to lower your total tax bill when you file early next year. It can be especially advantageous if you donated appreciated securities to avoid paying taxes on the gains. Along with your other tax documents, find and organize any receipts you have from donating to charities, whether it was a cash donation, securities contribution, or another type of gift.

7. Consider a Roth Conversion

Roth IRAs are attractive because you don’t pay income tax when you withdraw funds in retirement. However, if you’re a high-income earner, you may not be eligible to contribute and instead invest in a Traditional IRA. If you have a Traditional IRA, you may have the opportunity to convert to a Roth IRA and save money on taxes in the long run. The deadline to convert to a Roth IRA is December 31st, so if you’ve been considering doing so, or wonder if it’s an appropriate option for you, talk to your tax advisor ASAP.

8. Speak to Your Advisor About Harvesting Losses

If you invest in bonds, mutual funds, or stocks in accounts other than your 401(k) or IRA, review your realized and unrealized gains and losses. You might be able to offset some of your gains by selling some losses. Tax-loss harvesting can help you save on taxes, but you want to make sure the move also makes financial sense for your situation. Talk with your advisor about potentially harvesting your losses and if it makes sense for you. Should you determine tax-loss harvesting is appropriate, you’ll need to complete it by December 31st.  Tax loss harvesting is a program we started reviewing in appropriate client accounts earlier this year.

9. Set a Budget for Holiday Spending

Not surprisingly, Americans will spend nearly $1,000 this year on holiday gifts alone. During such an expensive time of year, a budget is a must to avoid overspending. Break down your spending and allocate a set amount of funds for everything you need this holiday season, including gifts (with an individual budget for each person), food, transportation, postage, and gift-wrap. Be realistic about what you can afford to spend.

10. Avoid Gift Tax Consequences

It’s never too early to start planning the legacy you want to leave without sharing a good portion of it with Uncle Sam. You may want to consider gifting. Each year, you can gift up to $14,000 to as many people as you wish without those gifts counting against your lifetime exemption of $5 million. If you’ve yet to gift this year or haven’t reached $14,000, consider gifting to your children or grandchildren by December 31st.

Do you have questions about last-minute financial actions you can take before 2016 ends? Do you want to start off on the right financial foot for the new year? I’d love the opportunity to offer you support along your financial journey. If you are interested in starting the year off strong, I encourage you to reach out to me for a year-end review. Call my office at 708.488.0115 or email us at lumencapital@hotmail.com to set-up an appointment today.

About Chris

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Christopher R. English is the President and founder of Lumen Capital Management, LLC-a Registered Investment Advisor regulated by the State of Illinois. A copy of our ADV Part II is available upon request. We manage portfolios for investors, developing customized portfolios that reflect a client’s unique risk/reward parameters.   We also manage a private partnership currently closed to outside investors.   Mr. English has over three decades of experience working with individuals, families, businesses, and foundations. Based in the greater Chicago area, he serves clients throughout Illinois, as well as Florida, Massachusetts, California, Indiana, and other states. To schedule a complimentary portfolio review, contact Chris today by calling 708.488.0115 or emailing him at lumencapital@hotmail.com.