Here's a statement sure to stun, confound, and amaze: It's only about three months until 2015 ends.
Once we get beyond the dizzying realization that 2015 has passed so quickly (and also that Christmas is now less than three months off), we do well to consider what financial decisions and planning will put us in the best position for a successful 2016, and beyond. The crush of daily events can cause people to put off thinking about year-end financial decisions all the way up to the moment that they run smack into the calendar deadline, and vow to start earlier next year. Now is that time.
This isn't an all-inclusive list of strategic financial considerations, but it can introduce you to a financial strategy or tactics to use within a strategy, or perhaps encourage you to explore the subject of year-end planning in greater depth. If you've had changes in your life or none at all you might need to make changes in your tax withholding amount. Such major life developments as having children, getting married, or ending a marriage, mean it's time to review how much you're having withheld from your paycheck for tax purposes. Even if you've had no major life alterations, it's still a good time to review your withholding. A large federal income tax refund may seem desirable, but in effect you're making a low-interest personal loan to the government and denying yourself use of your own money throughout the year.
Start a retirement account (if you haven't done so already) or max out your yearly contribution to a plan in which you're already participating. Every year we see new surveys and data that show Americans aren't saving enough for retirement. Experience shows that many Americans in their 20s and 30s think they have plenty of time. In their 40s and 50s they get nervous and step it up, and in their 60s they're wondering how to make their money last through retirement. Whatever programs your employer offers - IRA, 401k, or one of the other IRS-approved plans - join, and if at all possible contribute the maximum annual amount. The same holds true for your program if you're self-employed. This may mean making choices between wants versus needs, but it'll be worth it when your retirement needs take precedence.
Should you convert all or part of a traditional IRA to a Roth IRA? It depends on your income and financial situation. Roth IRA contributions are made after-tax, and your withdrawals for retirement are tax-free (subject to age at withdrawal and other rules). Traditional IRAs provide a tax break when contributions are made, but are taxed at withdrawal. It might be wise to convert at least a portion of your traditional IRA funds to a Roth IRA, particularly if your tax bracket will be higher at retirement. Thus, the earlier in your career you start Roth IRA contributions, the better.
Make charitable contributions to reduce your taxes (and do good things). Charitable contributions are a popular tax deduction, but sometimes overlooked is the need to itemize your charitable contributions and get a receipt from the charity. If you donate cash, that's easy. But if you donate household items, clothes or a vehicle, the IRS views those contributions as considerably more subjective. Detail is important. It's also a good idea to take photos of charitable contributions of high value, just as a backup.
There are multiple other tactics, among them contributing to college education 529 plans for children, grandchildren, another relative, or even a non-relative; "tax loss harvesting," or selling money-losing stocks and writing off the loss; and a number of others. These and other decisions have multiple ramifications and factors. Understanding them, and their effects, is crucial.
Did we mention the end of the year is only about three months away?
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