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7 Smart Money Moves to Make Before Year-End

November 15, 2017
Judith Ward, CFP®, Senior Financial Planner
Before getting caught up in the holiday bustle, get a head start with making these seven money moves.

Key Points

  • You can take advantage of a state income tax deduction or credit by opening or contributing to a 529 college savings plan.
  • Those 70½ or older are required to take required minimum distributions (RMDs).  
  • Make charitable contributions.
  • Use funds in a flexible savings account (FSA).
  • Review beneficiary designations on your accounts, insurance policies, and credit report.

The end of the year is a good time to evaluate your finances in preparation for that looming April 17 tax deadline. Before getting caught up in the holiday bustle, get a head start with these seven tips.

1. Contribute to, or open, a 529 college savings plan.

You have until year-end to take advantage of a state income tax deduction or a tax credit for contributing to a 529 account. But don’t wait until December 31. In most cases, the contribution has to be received, not simply postmarked, by that deadline. Remember that contributions are considered “gifts.” Individuals can contribute up to $14,000 per year (or $28,000 for married couples “splitting” the gift), per person, to qualify for the annual gift tax exclusion.

2. Make charitable contributions.

Support your favorite causes and benefit from a tax deduction if you itemize. You can give directly to qualified charities or, for convenience, consider a donor-advised fund where you get the tax benefit now and make the charitable directives at a later time. Of course, cash is always welcome, but you can also give appreciated stock held for more than one year, too. Generally, you would transfer, in kind, the securities and receive a tax deduction for the full market value and avoid paying any capital gains taxes.

3. Take your required minimum distributions.

If you are age 70½ or older, you are required to take RMDs from tax-deferred retirement accounts, such as individual retirement accounts (IRAs) and 401(k)s. With the exception of the first year, these distributions must be taken annually by December 31. Unfortunately, these distributions don’t come with a tax benefit—they increase your taxable income. You’ve enjoyed years of tax deferral, so now Uncle Sam wants his share. There are different rules for taking distributions from 401(k)s and IRAs. Check with your financial institution or the IRS website to help calculate the appropriate amount. Failing to withdraw the correct amount could result in a penalty. (Roth IRAs are not subject to RMDs for the original owner.)

4. Use the money in your flexible spending accounts.

If you participate in a FSA through your employer, make sure you’ve checked your balance so that you don’t forfeit any unused funds. Typically, there are two flavors: Healthcare FSA and Dependent Care FSA. Each account allows you to put aside money on a pretax basis and then use the money to pay for qualified expenses. FSAs can cover a variety of expenses ranging from doctor visits and over-the-counter medical supplies to day care for your children or elder care for dependent parents. Check to see if your FSAs offer a grace period or the option to roll over any funds.

5. Review your beneficiary designations.

Make sure this information—for both primary and secondary beneficiaries—is up to date on your retirement accounts and life insurance policies. The beneficiary information dictates how these assets will be distributed. It’s also a good idea to make sure your other estate planning documents are current, especially if you’ve had changes in your life. Don’t have an estate plan? It’s not just for the wealthy. Mark your calendar to get one in place.

6. Get your credit report.

Every day you hear about data breaches and systems getting hacked. Federal law allows you to get a free copy of your credit report from the three credit reporting companies every year. It’s a good idea to review them for accuracy and make sure nothing is amiss. You might have to pay to receive your credit score, unless you use a product, for example, a credit card company, which provides it to you, but obtaining your credit report is free and easy to do.

7. Check your tax withholding.

Have you been receiving a tax refund every year? While it may feel good—like getting a financial windfall—how has that strategy worked for you? For example, if you feel like you are scraping by each month, taking home more money each paycheck might give you some breathing room in your budget. Alternatively, the extra money could go toward retirement savings or paying down debt.

A 529 college savings plan’s disclosure document includes investment objectives, risks, fees, expenses, and other information that you should read and consider carefully before investing. You should review the 529 plan offered by your home state or your beneficiary’s home state and consider, before investing, any state tax or other state benefits, such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s 529 plan.

This material has been prepared by T. Rowe Price for general and educational purposes only. This material does not provide fiduciary recommendations concerning investments or investment management. T. Rowe Price, its affiliates, and its associates do not provide legal or tax advice. Any tax-related discussion contained in this material, including any attachments/links, is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any tax penalties or (ii) promoting, marketing, or recommending to any other party any transaction or matter addressed herein. Please consult your independent legal counsel and/or professional tax advisor regarding any legal or tax issues raised in this material.

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