What You Should Do With Your Money Before 2015 Ends


September 29, 2015 – By Cameron Huddleston

What to Do With Your Money Before 2015 EndsDo you have money on your mind? If so, you’re not alone. A recent GOBankingRates survey found that one in four Americans think about money more than anything else.

To make the most of your money this year in order to get ahead financially in 2016, now is the time to get serious. Take these 10 steps before year’s end to rein in spending, save more and lower your tax bill.

Create a Budget for the Holidays

To avoid going overboard with holiday spending, create a budget now, said Nick Bradfield, founder of subscription-based financial advising firm Divvy Investments. “If we start to budget early, then we may be able to find some ways to either cut back on things or save up a bit for the holidays so that the credit cards don’t swell,” he said.

Think of budgeting as making better choices rather than cutting out things, Bradfield said. Review your bank statement from the past month to see where your money went. Then pinpoint expenses that can be scaled back. Create a plan for the next month so you’ll be on track to have enough cash to cover holiday expenses.

Review Your Tax Withholding

Now is a good time to make sure you’re on track with your tax withholding so that you won’t owe money next April, said Stein Olavsrud, a certified financial planner (CFP) at FBB Capital Partners. Otherwise, you’ll need to increase your withholding during the final months of the year.

On the flip side, if you received a big tax refund in the spring and didn’t adjust your withholding, that means you’re allowing Uncle Sam to hold your money interest-free. File a new W-4 form with your employer to claim additional allowances and get less tax withheld. IRS.gov has a withholding calculator you can use to figure out how many allowances to claim.

If you received a refund of $3,000, for example, you should get an extra $250 in your paycheck each month by adjusting your withholding. Then use that money to cover extra expenses around the holidays, pay down debt or boost retirement savings.

Check Your Credit Report

Don’t let the opportunity to check your credit report for free slip by. Every consumer is entitled to one free credit report per year from each of the three credit reporting agencies: Equifax, Experian and TransUnion, said Katie Ross, education and development manager for American Consumer Credit Counseling. You can get your free copies at AnnualCreditReport.com.

Review your report to make sure it’s accurate. Also review your outstanding debt and develop a plan to get your credit cards paid off, Ross said.

Maximize Your 401k

You can contribute up to $18,000 to a 401(k) in 2015 plus an additional $6,000 if you’re 50 or older. If you can’t set aside that much, at least make sure you’re contributing enough to take advantage of the employer match, said Greg de Jong, a CFP with Savant Capital Management.

Talk with your workplace benefits coordinator or access your 401(k) account online to adjust your contribution before the end of the year. The more you contribute, the more you lower your taxable income because contributions are tax deferred.

Because the stock market has taken a hit this year, you can buy some stocks at a lower cost, said Travis Sollinger, a CFP with Fort Pitt Capital Group. “The golden rule is to buy low, and you can actually do this in 2015 because the market is down year-to-date,” he said. “Don’t let one performance deter you from saving for a retirement that is 15 to 20 years down the road.”

Open a Solo 401k

A great way for the self-employed or business owners with no employees to save for retirement is the solo 401(k), Olavsrud said. Although you have until the tax-filing deadline in April to make a contribution, you must open an account before Dec. 31, he said.

You can contribute $18,000 in 2015 and another 25 percent of compensation, up to a maximum contribution of $53,000. If you’re 50 or older, you can contribute an additional $6,000. The 401khelpcenter.com has a list of solo 401(k) plan providers.

Donate to Charity

Make charitable contributions before the end of the year to take advantage of the tax break you’ll get. Usually you can deduct donations of cash or property made to qualified organizations up to certain limits if you itemize on your federal tax return. Be sure to get receipts for all contributions.

Sell Stock Losers to Offset Winners

Now is a good time to review your portfolio to determine whether to cash in on winning stocks and sell losers to offset capital gains, Olavsrud said. If you hold an asset for more than a year and sell it at a profit, you must pay tax on your capital gains, typically 15 percent or 20 percent for high-income taxpayers. Those in the 10 percent and 15 percent brackets pay no tax. If your losses are more than your gains, you can deduct the difference up to $3,000 as a loss on your tax return to offset other income.

Review Insurance Policies

Before winter weather takes hold, review your homeowners insurance policy to make sure you have adequate coverage. Damage caused by wind, ice, snow and burst pipes is typically covered by standard policies.

But sewage backup, which can be caused when melting snow overburdens sewer systems, isn’t covered by most homeowners policies, according to the Insurance Information Institute. Adding this coverage costs $40 to $50 a year.

You also might be able to save money on your insurance premium by raising your deductible. Boosting it from $500 to $1,000 could shave 25 percent off your premium.

Make an Estate Plan

“Investing in an estate plan at year end is a great way to not only plan for the future, but also to revisit your assets and financial circumstance,” said Elise Rodriguez, an estate-planning attorney in Miami. Meet with an attorney to draft a will, a power of attorney and a living will to spell out end-of-life care wishes. Appoint a trusted relative or family member to make health care decisions for you if you are incapacitated.

Do Take Required Minimum Distributions

If you have an IRA and are 70 ½ or older, you must take a minimum required distribution by Dec. 31. However, for retirees who reach age 70 ½ during 2015, the deadline for taking their first RMD is April 1, 2016.

The penalty for not taking that withdrawal is 50 percent of the required distribution amount. So if you’re required to withdraw $10,000 but don’t do this on time, you’ll be hit with a $5,000 penalty.

“This is mandatory and it’s easy for some people to forget, especially if they don’t need the money to live on,” Sollinger said .

Find worksheets to calculate your RMD at IRS.gov. Also be aware that you must take RMDs if you an inherit an IRA, Olavsrud said.