How To Get Financially Organized Before The End Of Year

Welcome to Select’s new advice column, Getting your money back. Once a month, Financial Advisor Kristin O’Keeffe Merrick will answer your urgent money questions. (You can read his first opus here on what to do with your excess cash.) Do you have a question? Drop us a note at AskSelect@nbcuni.com.

Dear Kristine,

I know there are some things I should be focusing on before the end of the year when it comes to my finances, but I would like a good checklist to make sure I end the year on a good mark. Can you help?

Happy Holidays!
Organized in Oregon

Dear OIO,

When you’re a financial advisor, you get criticized in January. Everyone spends the holiday season reviewing their goals and dreams for the New Year. Obtaining “financial form” is very high on the list of resolutions.

But what if I told you that it was just as important to focus on your financial health in December? December can be crazy because everyone is usually swinging around the Christmas tree and spending too much money. But the actions you take in the last month of the year can have a huge impact for a number of reasons. Here are some things you should focus on before the end of the year:

Your 401 (k) contributions are tax-exempt contributions, which means you don’t pay income on the money you contribute to your 401 (k). You can contribute up to $ 19,500 per year ($ 6,000 more if you are 50 or over). Contributing to a 401 (k) allows you to pay income tax only when you withdraw money from the plan in the future, in which case your income and tax rate may be lower or you may have more deductions available to offset income. If you haven’t maxed out your 401 (k) this year but want to, be sure to alert your 401 (k) administrator (usually someone from HR or Payroll) so you can increase your contribution for the last month of the year.

IRA contributions should not be made until you have filed your taxes, but remember that you can contribute up to $ 6,000 to your IRA or Roth IRA each calendar year ($ 7,000 / year if you are 50 or over). In some cases, depending on your income, you may be entitled to a tax deduction.

If you’re using a 529 Education Savings Plan to save for your education, make sure you pay your 2021 contribution in full by the end of the year. In some states, your contribution is tax deductible (be sure to check your state’s plan for more information). You can make a contribution of $ 15,000 per account. If you are married, you can earn up to $ 30,000 per year. Remember, 529 accounts grow tax free if used for tuition.

A mandatory mandatory distribution (RMD) is a taxable distribution that the IRS requires you to withdraw from your IRA if you are over 72 years of age. Plus, if you are the beneficiary of an IRA from a deceased person, you’re also required to take a mandatory distribution. The amount you need to take is based on a formula created by the IRS. It takes into account your age and the size of the overall ARI. Don’t forget to withhold taxes!

If you are a business owner, this task is crucial before the end of the year. Additionally, if you are in or near the next tax bracket, you should also pay close attention to anything that might push you up.

• If you think you’re in the danger zone of moving to a higher tax bracket, consider donating to charity (see below for more on this).
• Determine whether you need to speed up deductions or defer income, potentially allowing you to minimize your current tax liability. Sometimes your employer will allow you to defer premiums to the new year. Also, if you are a business owner and are waiting for a payment, maybe see if it can be paid in the new year. Check with your accountant.

Charitable giving is good for the soul and for lowering taxes. Make sure you officially make your donation by December 31, 2021 to count towards your 2021 tax year. There are many different giving strategies you can implement. They include:

• Give good old-fashioned cash (or check)!
• Donate lightly used items and clothing
• Donate valued securities: If you own stocks that have appreciated over the years, you can benefit from an immediate tax deduction, which can also help you avoid paying capital gains tax on the appreciated part of their value. Donations also have the potential to reduce future inheritance taxes.
• More Sophisticated Gift Options: Giving is serious business. There are ways to donate through Charitable Remainder Trusts and Charitable Master Trusts. You can also offer life insurance. If you are considering these options, be sure to coordinate with a financial advisor, lawyer, and possibly an accountant.

In the investment world, we use a term called “harvest tax losses” where you assess whether you can benefit from the sale of a losing investment to offset the gains or establish a deduction of up to $ 3,000. . Excess losses can also be carried over to future years. Keep the following things in mind:

• Short-term gains (gains that resulted in a sale of less than 366 days) are taxed at a higher marginal rate. You first want to aim to reduce them.
• Don’t disrupt your long term investment strategy when harvesting losses
• Be aware of the “wash sale” rules that affect new purchases before and after the sale of a security. If you sell a security at a loss but buy another “essentially identical security” within 30 days of or after the wash sale, the IRS will consider it a “wash sale” and reject the deduction. for loss.
• Talk to your financial advisor about what they recommend as the best tax collection strategy

Making sure to assess any changes in life over the past year or the coming year is an important part of financial planning. Moving to a new state, getting married or divorced, having a child, changing jobs or retiring are all big life changes. If you think you’ve undergone a significant change in your life that could affect your financial life, this might be a good time to speak to your financial advisor.

In general, if you think life is getting too complicated financially to handle on your own, it might be time to hire someone to help you out. Maybe this could be your New Years resolution.

Hope your holiday season is a blast! Don’t spend too much money.

Kristin O’Keeffe Merrick is a financial advisor and financial expert at her family business, O’Keeffe Financial Partners, located in Fairfield, NJ.