7 Year-End $ Moves Worth Considering

Maybe, just maybe, in this brief period between Thanksgiving and Christmas, you’ve got a few moments to think about and act on your finances. It’s a great opportunity to do so, as you still have a little bit of time to get some important things done for 2017, and you can also start being proactive for 2018 (which is much easier to do right now than in March of 2018, which may be the next time you stop to think of it).

With that in mind, here’s a quick list of seven things you might consider doing before 2017 draws to a close.

1. Increase your 401(k) contributions: The IRS recently announced an increase to the annual contribution limit for 401(k), 403(b) and 457 plans. The current annual limit, effective through the end of 2017, is $18,000 for anyone under 50, but in 2018 you will have the option to contribute an extra $500, for a total of $18,500.
If you’re over age 50 and participate in one of the above retirement plans you will also benefit from this increase. In addition, you’ll still be eligible for the $6,000 catch-up provision that raises your annual contribution limit to $24,000 for 2017 and $24,500 for 2018.

2. Review your charitable giving strategy: If you’re charitably inclined and usually give cash directly to your charitable organization of choice it may make sense to consider one of the following two options.

Donate appreciated shares of stock instead of cash: If you donate stock that has increased in value since you bought it more than a year ago – and if you itemize deductions — you can take a charitable deduction for the stock’s fair market value on the day you give it away. And your favorite charity can turn around and sell those shares immediately and tax free.  This can be a great strategy if you own a stock that has appreciated in value and you’re ready to sell it or even just want to reduce your exposure but don’t want to pay taxes on the appreciation.  You can even give shares of a stock away and immediately use the cash you would have given to charity to buy back the same number of shares in the same stock!  Doing so would mean that you’d potentially reduce the tax bill due when you sell your shares in the future.

Donate your Required Minimum Distribution (RMD) from a retirement account directly to charity: It’s called a Qualified Charitable Distribution or QDC. If you’re 70 ½ or older you may be able to transfer up to $100k of your RMD directly to charity. Why would you want to do this?  The gift counts as your Required Minimum Distribution for the year but it’s not included in your adjusted gross income. That way your gift could give you a tax break even if you don’t itemize your deductions!  And, by lowering your adjusted gross income, you could potentially lower the taxable portion of your Social Security and increase the amount of miscellaneous or medical expense deductions you can take just to name a few benefits.  There are some very specific rules that need to be followed so check with your CPA or one of us at Beacon first.

3. Take your annual Required Minimum Distribution (RMD): If you’re 70 1/2 or older and own a traditional IRA , 401(k) or 403(b), or if you’re the beneficiary of an inherited IRA, there’s a very good chance that you’ll need to take a required minimum distributions from your account by year end. The penalty for failing to do so is a 50 percent tax on what should have been withdrawn so pay attention.  The rules around this are pretty complex so when in doubt, ask.  We’re here to help.

4. Harvest some losses: Tax loss harvesting is the practice of selling a security that has experienced a loss. By realizing, or “harvesting” a loss, you’re are able to offset taxes on both gains and income. The sold security is replaced by a similar one, maintaining your optimal asset allocation and expected returns.

5. Make a contribution to a traditional, Roth or SEP IRA:  Contributing to one of these can be a great and easy way to save for the future and improve your tax situation. Knowing which one is best for you, how much to contribute and how it might impact your tax bill is complex but definitely worth having a conversation about if you have earned income (W2 or 1099) in 2017.  It sometimes makes sense to contribute to one even if you feel like you don’t have the cash flow this year.  You can contribute using money invested in a savings account or taxable brokerage account assuming that money is otherwise invested for the long haul.

6. Spend the $ in your Flexible Spending Account (FSA): If you still have money set aside in a flexible spending account for health care expenses, see if you can order new glasses or schedule that dental work you’ve been putting off. Some companies offer a grace period into the spring or a $500 FSA carry-over from one year to the next but not very often. If your employer doesn’t offer these provisions, then you’ll lose any unused funds once we ring in the new year.

7. Contribute to your Health Savings Account (HSA): If you are enrolled in a high-deductible health insurance plan (HDHP) as defined by the government, you may qualify for an HSA. HSA stands for Health Savings Account, and it is a handy way to save for medical expenses and reduce your taxable income. That’s because the accounts get a triple tax benefit: The money you contribute reduces your taxable income. It grows tax-free. And withdrawals are tax-free as well, as long as the money is used for qualified health expenses. Each year, you decide how much to contribute to your HSA account, though you cannot exceed government-mandated maximums. In 2017, these limits are $3,400 for an individual and $6,750 for a family; adults over 55 can add up to $1,000 more.  Because of their tax advantages and because any unused dollars roll over to the next year, HSA’s can also be a great place to save for medical expenses that might occur during your retirement.  So it could make sense to fund your HSA this year even if you don’t anticipate much in the way of current medical expenses.

Perhaps you’ll find one or two (or all seven) of these handy. For my family, numbers 1, 2, 5 and 7 are most relevant. Let us know which of these made sense for you?  And, as always, please let us know how we can help.



Geoff Hall, CFP®
[email protected]

My wife, Crystal, and I have been married for 11 years and have two kids, Cooper (10) and Rhodes (8.) When I’m not spending time with them you might find me downtown serving at our church, pushing my limits during a mountain bike ride or having coffee with a friend in the Five Points area. I've been a financial advisor for 29 years and I'm thankful for the privilege of shepherding my family of clients through the ups and down of the markets, and of life for that matter.