We’re all busy at this time of year, with holidays, shopping, traveling, and social engagements, but because many important financial planning decisions must be implemented before the end of the year, take a few moments to assess your situation before December 31. We want to help you enter 2017 on solid financial footing, so take these four steps before the end of the year.
Examine your Thrift Savings Plan (TSP) contributions. Your TSP not only helps you save for retirement; it also offers you a valuable tax savings opportunity. In order to reap the most advantage on your taxes, and to adequately prepare for retirement, contribute the maximum allowable amount each year. For 2016 the max is $18,000, and you can contribute an additional $6,000 if you’re aged 50 or older. At the very least, contribute enough to reap your maximum employer match, if your agency offers matching retirement funds.
Give to charity. If you itemize your taxes, charitable donations offer a valuable savings opportunity in the form of a tax deduction. But you must make your gifts before the end of the year, if you want to count them on your tax return in the spring. Remember to research first, to make sure your chosen organization is qualified by the IRS, and keep a record of your gift.
Plan for next year. Take a look at your most recent pay stub to get an idea of your savings habits. Are you contributing enough to your TSP? Do you expect a raise in January? If so, remember to divert half of the extra funds to retirement savings. You can enjoy your raise while also setting yourself up for financial stability in the future. Visit your human resources department to adjust paycheck withholding.
If you’re retired, plan your distributions for next year. As much as we wish it were true, retirement is not a “set it and forget it” exercise. Financial planning continues to be important during your retirement years, and planning distributions is a large part of your overall strategy. For example, if you expect to sell your home at a profit, you might wish to reduce your distribution amount that year in order to stay in your income tax bracket. That’s just one example, but as you can see, distributions must be carefully planned each year.
If you haven’t begun taking distributions yet, you will be required to do so during the year in which you turn 70 ½ (or else face a penalty on your taxes). If that time is approaching, give us a call to discuss your distribution strategy. We can help you plan the right time to take your required minimum distributions (RMDs) so that you avoid any potential complications with your tax return.
