Thanksgiving has passed and Christmas is around the corner. Soon enough, another year will be ushered in. That means time is running out for you to make some savvy money moves to start 2017 on financially sound footing. Here are 10 last-minute financial moves to consider:
1. Max out your retirement contributions. If you have the extra cash, put in the maximum contribution amounts into your 401(k) or 403(b) retirement plans, says Chris Chen, a certified financial planner in Waltham, Massachusetts. You can contribute $18,000 if you are under 50, and up to $24,000 if you are 50 and over. “It yields a tax benefit immediately, and improves retirement prospects,” says Chen. “What's there not to like?” Similarly, max out contributions to your IRA (the limit this year is $5,500, or $6,500 for those 50 and over).
2. Make the most of your plastic. Look over your credit card spending and make sure you’re getting the most rewards for your purchases, says Chen. If not, find a card that maximizes benefits for your spending habits. For example, if you have a long commute by car and spend a lot on gas, look for a card that offers superior rewards on gas purchases. Same thing if you spend a lot at the supermarket.
3. Update important documents. Lives change from year to year, thanks to marriages, divorces, births and deaths. This can affect your finances, too. Look over life and disability insurance policies to ensure you have enough coverage for your family — especially if it’s grown. Use an online insurance calculator to determine coverage needs, which vary depending on the size of your family, age of children and current debts. Update wills, powers of attorney, health proxies and beneficiaries on insurance and retirement accounts to reflect any changes to family circumstances. Also, make sure coverage on your homeowner’s policy reflects any improvements or renovations you made this year.
4. Harvest your investing losses. “Most of us will not find much [in terms of] losses to harvest this year,” says Chen, given that major stock indexes are all on track to finish higher this year. But if you do have losing positions to sell, you can use them to offset gains. If your losses exceed your gains, you can also deduct up to $3,000 and carry forward any additional losses to future years. “Done correctly this can save you a bunch of capital gains taxes in the future,” Chen says.
5. Adjust your FSA. If it’s open-enrollment season at work, consider signing up for your employer's flexible-spending account (FSA) to take advantage of tax deductions on health care and/or childcare expenses in the upcoming year, says Jeffrey Tomaneng, a financial planner with Lincoln Investment in Waltham, Massachusetts. If you already have an FSA that still has money in it, spend it before the end of the year to avoid losing those funds (some employers offer a grace period through the first two and a half months of the new year). You can stock up on FSA eligible items like bandages, athletic braces and first-aid kits (a great stocking stuffer); order new dentures or glasses; or see an acupuncturist.
6. Lock in some interest rate protection. Federal Reserve Chair Janet Yellen has made it clear that an increase in the federal funds rate is likely on the way, with additional hikes to follow gradually. This means any consumer loans with rates tied to this benchmark will rise. Now’s the time to gird against those increases. If you have a home equity line of credit, or HELOC, with a variable rate, ask your lender to fix the interest rate on the amount you already borrowed so that any rate increase applies only to future borrowing. Homeowners with adjustable-rate mortgages should similarly reach out to a loan officer or mortgage broker to find out options for refinancing before rates move higher.
7. Set a limit on holiday spending. Make it a point to avoid overspending this holiday season. Instead of relying on credit cards to fund your gift giving, limit yourself to just cash to stay within budget, says Brandie Farnam, a certified financial planner with LearnVest. “Take it one step further and delete your credit card information from retail sites you use regularly to make it more difficult to shop online,” Farnam says.
8. Bank extra income. If you’ve maxed out your 401(k) contributions or have surpassed the ceiling for the Social Security payroll tax — at $118,500 this year — you may find your take-home pay has temporarily increased these last months of the year, says Farnam. Instead of using that extra money for frivolous expenses, transfer it from your checking account to savings. As for end-of-year bonuses, plan in advance how you’ll use the money, such as giving 10 percent to charity, spending 20 percent for fun and putting 70 percent in savings.
9. Get your 529 plans in order. Make sure to fund these plans before year-end to reap any tax incentives for 2016, says Melissa Sotudeh, a financial planner with Halpern Financial in Rockville, Maryland. Additionally, if you have a kid in college and are making 529 withdrawals, make sure that any qualified expenses paid in a calendar year are reimbursed in that same year. “For example, if you pay spring tuition in December, then you must request a reimbursement from the 529 plan in December,” Sotudeh says. Keep records of these expenses for your taxes.
10. Finally, take stock. Look at how your personal finances compare to last year or even five years ago, says Sotudeh. The easiest way is to calculate your net worth — your assets (such as cash on hand, retirement account balances and real estate values) minus any debt (like mortgages, auto loans and credit card debt).
“Is your spending bringing you closer or farther away from what you find truly important in life? Have you made progress to shrink debts and increase assets, or do you need to make changes for 2017?” she says. “Be honest about what is really within your control (like saving and spending) versus what is not (market performance, other people’s actions).” Use that to determine a budget and goals for the next year and beyond.