For Mark Roberts’ Use: December 31 marks the last day of the calendar year, and it also marks the deadline for taking advantage of certain tax advantages. You want to make sure you qualify for all possible credits and deductions, and you also want to avoid triggering certain penalties. Before you strap on your party hat and head out to that New Year’s Eve celebration, check to make sure you’ve completed these important financial planning steps.
Maximize your retirement account contributions. To reap maximum tax advantages, you can contribute $18,000 to your 401(k) fund this year. If you’re age 50 or older, that amount increases to $24,000. At the very least, make sure you’ve contributed enough to reap your maximum employer match, or you’re essentially turning down free money.
Max out your IRA contributions. For IRA accounts, the maximum contribution is $5,500, or $6,500 if you’re 50 or older. You must make these contributions by April 15 in order to receive maximum savings on your taxes, so you do have a bit more time. But you should make a plan for those contributions now, so that you’re not rushed at tax time.
Give to charity. Charitable contributions can save you money on your taxes, by allowing you to claim a large deduction. But you must make your charitable contributions before the end of the year, if you want to count them on your 2015 tax return. Remember to keep accurate records of your contributions so that you can claim your deduction correctly according to IRS rules.
Take a look at your last pay stub for the year. Are you contributing all that you can to your retirement fund? Are you due for a raise at the beginning of the year? Looking at your pay stub will help you better understand your approach to saving. If you’re going to get a raise, divert at least half of it to retirement savings. You can enjoy a little more money in your pocket now, while working toward a more secure retirement in the future.
If you’re retired… Take your required minimum distribution. If you’re a retiree born before July 1, 1945, then you are required to take a minimum distribution from your retirement account before the end of the year. Otherwise, you could owe a stiff penalty in the amount of 50 percent of the amount that should have been withdrawn. Ouch!
In certain cases, you might be able to delay your required minimum distribution, and take two distributions in 2016. However, this could trigger negative tax consequences in 2017, so it’s usually best to go ahead and take your money now.
If you’re unsure of what to do now, give us a call and we can help you.