Personal Finance


Beat the Year-End Rush on These Three Financial Moves

December 7, 2016
Judith Ward, CFP®, Senior Financial Planner
Thinking of opening up a 529 college savings plan? Putting off taking an RMD? Do you want to donate to charity? There’s no need to wait until the end of the year.

Key Points

  • You can avoid the end of the year rush by setting up regular contributions to your 529 accounts.
  • If you are age 70½ or older, with the exception of those in their first year of taking RMDs, these distributions must be taken each year by December 31.
  • If you want to make a charitable donation financially, you can donate your RMD to charity or contribute through a donor-advised fund.

When it comes to making financial moves, why do people wait until the end of the year? Are they waiting for a bonus or a raise? Guidance from their accountant or financial professional? Or is it just a case of good, ol’ procrastination?

No matter the reason, when it comes to contributions, distributions, and deductions around financial accounts, there are always some folks who put things off until December. Here are three financial moves you can make now to beat the holiday rush.

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

If you have young children who intend to go to college, saving in a 529 college savings account may be advantageous. Two-thirds of states allow a state income tax deduction or a tax credit for contributions. Many states also allow excess contribution amounts to be carried forward so that the tax deduction or credit can also be applied to future years.

Contribution limits for 529 savings plans are generous. But please note that, from a tax perspective, they are considered “gifts.” This means individuals can contribute up to $14,000 per year, per individual, and qualify for the annual gift tax exclusion. You do want to make sure you get this right, so checking in with a tax advisor is highly recommended.

It’s also possible to set up monthly or regular contributions to a 529 savings plan account—so you don’t have to come up with the entire amount at the end of the year.

2. Take your required minimum distributions (RMDs).

If you are age 70½ or older, apart from the first year you are required to take RMDs, these distributions must be taken annually by December 31.

If you have multiple IRAs, it can be a little more complicated. You will have to calculate the appropriate RMD for each account. Then, the total distribution amount can be taken from any one or more IRAs, as long as the total RMD amount is withdrawn. There are also guidelines on the IRS website to help with these calculations.

In reality, there’s no need to wait until the end of the year to take your RMDs. Check with your financial institution about having your RMDs paid on a monthly or quarterly basis so you can have access to that money year-round.

Did you know that Roth IRAs are not subject to required minimum distributions while you are alive? These accounts might be a great way to diversify the tax treatment of your retirement income sources.

3. Donate to charity.

Many of us donate our time and money during the holiday season, but why wait until the last minute?

If you have to take your RMDs but don’t need that money, you can have it sent directly from your IRA to an eligible charity. Generally, this money (up to $100,000) would not be included as taxable income.

In the past, Congress would approve qualified charitable distributions from IRAs in December, which forced this to be a last-minute exercise. But thanks to a law passed in 2015, you can now make qualified charitable distributions anytime during the year.

Another option is to donate through a donor-advised fund. This means you can contribute at any time during the year and get an immediate tax deduction. At a later point, you can make your grant recommendation to support your favorite charities.

You can make contributions using a wide range of assets. For example, you can make noncash donations using appreciated securities. (Please note: You cannot contribute directly from your IRA; however, you can name your donor-advised fund as your beneficiary.)

While some people wait to make their donations at the end of the year in order to benefit from tax deductions, keep in mind that organizations need money year-round. According to Network for Good’s 2015 Online Giving Trends, charities received 30% of their donations in December.

And don’t leave money on the table. Many companies provide matching funds for their employees’ donations to qualified charities. See if your employer participates and make sure to take advantage.

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.

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