Building wealth is a significant step in the process of creating the financial future you desire. If you are working with a wealth advisor, you will typically have a meeting covering your comprehensive financial plan for the next year. If you are not working with an advisor, however, here are three year-end strategies to help your financial management: tax planning, retirement planning, and charitable giving.
Although tax planning is a year-round activity, December is a good time to look at some end-of-the-year financial activities you should consider:
1. Maximize your deductions by taking medical expense deductions in 2015 instead of 2016. Also, use your medical reimbursement and dependent care accounts as well as your health and medical savings accounts (if applicable).
2. Pay off consumer loans and credit card debts so that payments to non-deductible consumer interest are reduced or eliminated (possibly by using a home equity loan).
3. Review your investment portfolio with your advisor to determine if losses on passive investments can be used to offset gains on other investments.
Make sure you are maximizing your retirement plan contributions. In addition to any employer sponsored retirement plan, consider contributing to an IRA as well. Although you don’t have to actually fund your IRA until April of 2016, you can start to contribute now. The maximum contribution to a traditional IRA or Roth IRA for 2015 is $5,500 (or $6,500 if your are 50 or older).
Keep in mind that procrastination can cost you money. If you make your IRA contribution at the last minute, you miss out on more than 12 months of potential gains, as well as the chance for those gains to compound over time. So, the earlier you contribute to your IRA, the better.
If you are planning to make a donation to a qualified charity, consider donating long-term capital gain property to a charity (such as appreciated stock) rather than selling the property and donating the proceeds. The charitable deduction for a gift of long-term capital gain property is generally based on the fair market value of the property, and there is no income tax on the appreciation. Because everyone’s situation is different, if you are not working with a wealth advisor, you should talk to your tax professional to help you get the deductions you deserve.
Remember, you are the CFO of your life! It is important to take some time to plan your finances before the end of the year. These three strategies can help you build the financial future you desire in 2016.
Pamela Plick is a member of the DailyWorth Connect program. Read more about the program here.