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Your Year-End Money Review

I recently took a little break from  taking on new clients and posting to my blog to have my 2nd baby. As joyful as my time with her was, I am ready to get back to work! With year end approaching and so much to cover, I think this is a good time to get our finances in order in preparation for tax time and the new year. I see so many clients during tax time that I wish I would have seen before the year ended so we could have made some adjustments and saved some money! These are a few general steps that will help you find out where you stand financially.

Review and Understand your Paycheck

Your pay stub will give you information on gross vs. net pay. Net pay is the pay you receive after deducting your withholdings. It is important to review what exactly is being withheld.

Flex Spending Accounts

If you contributed to an FSA for health or dependent care, be sure to spend and submit those expenses by year end. If you don't spend AND submit the expenses by year end (or sometimes a little bit after) you will lose that money.

Retirement Accounts and Health Savings Accounts

Did you max out your 401k and/or 403b if you intended to do so? The max employee contribution this year is 19k for each  (25k if you are over 50) and if you have both, you can max both out. If you underpaid your tax liability for the year or are looking for a way to minimize what you owe, you may want to consider maxing these out before year end to get the tax savings.  If you have a Health Savings account, the max contribution (for both employer and employee) is $3.5k if you are single and 7k if you are married. If you intend to max this out, find out if you are on track. For all of these accounts, it is also important to make sure you did not over contribute or you will owe tax on the over-contribution. Your provider can usually correct over-contributions before year end.

Review Taxes

If you filed for an extension, your tax return is due on October 15th. Plan to make that happen by the deadline to avoid penalties. If you are self employed, make sure books are up to date and estimated tax payments are made.  If you made more than expected and want to set up retirement plans to shield some income, now is a good time to do so. 

If you under-withheld taxes for the year, you have some time to make an estimated tax payment to avoid penalties at the end of the year. Yes, there is an underpayment penalty for owing  over a certain amount of money at year end, the IRS wants you to pay them as you get paid. 

Now is also a good time to consider getting a projection done by a tax professional. If you made a change this year such as purchasing a home, withdrawing early from a retirement account or having a child, your tax liability may have changed. Also if you received a bonus, a flat tax was probably taken out that may not reflect your actual tax rate. A tax professional can guide you on what you can do now and what to expect during tax time.

Open Enrollment Time

Towards the end of the year and the beginning of the new year, most companies have open enrollment. This is the time of year where you can change your medical plan, your insurance, and other employee benefits offered by your company. Review your life insurance and disability limits to ensure you have adequate coverage and make changes if needed.  If you contribute to a Flex Spending Account, consider changing the amounts based on what you spent this year and anticipated changes for next year. Take a look at your health coverage and evaluate if you have the right plan for you. If you are looking for coverage only for yourself, consider an HSA which can also serve as a retirement vehicle.

Review Savings, Spending and Debt

Take a look at your savings and debt from the beginning of the year to now. Are you on track to reaching your goals? Do you have more debt? Did you save? If you are not happy with the way things have gone so far, now is the time to make some changes. 

Take a look at your fixed expenses (rent, car note, etc) and your discretionary expenses (food, clothing, entertainment) and figure out where you can make changes to save more before year end.  Take a look at your credit card debt and devise a plan to pay it off. Starting with the card with the highest interest rate is usually a good idea. Do you have an emergency fund? Now is a good time to start one.  If you have student loan debt, especially if you are on an income driven repayment plan, review what new payment may look like after the annual income verification. Lastly, consider starting a fund in a separate bank account for your vacations for next year if you don't already have one. Contributing money from each paycheck to a vacation fund will help you plan better and reduce the guilt!  Getting started on these things now will make your financial goals clearer going into the new year.

Review Investments

What are you invested in? Make sure your investment in your retirement accounts and trading accounts align with your time horizon and risk comfort level. Consider rebalancing your accounts to get back to you original target weight of each investment type.  Rebalancing forces you to buy low and sell high because you are effectively selling asset classes that have done well and replenishing low performers. Double check beneficiaries on these accounts.  Remember, these accounts do not go through probate or follow your estate plan. Your listed beneficiary will be the person getting the money, regardless of what your will says.

I hope this list was helpful. If you would like to discuss any of these items with a professional, send me a message on my contact page so we can get started!

Alicia Jegede is the principal CPA and financial planner at New Gen Financial Planning, LLC. 

Disclaimer: This article is provided for general information purposes only. Nothing contained in the material constitutes advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Alicia Jegede.  All rights reserved.