5 Smart Financial Things to Do Before December 31st

First in a 2-part Series

Sorry folks, but your year-end madness is not limited to covering your house with decorations a la Clark Griswold or fighting the mongrel hordes at the mall.  There are some financial items that need your attention, too!

This time we’ll focus on items #1 and #2.   In part 2 we’ll cover the rest!

1. Contribute to a tax advantaged savings plan at work
2. Sign up for your Flex Spending Account
3. Harvest investment losses
4. Contribute to charity
5. Consider a Roth conversion

#1:  Maximize Retirement Account Savings for 2014

For employees of larger organizations that offer 401(k), 457, or 403(b) retirement plans, make sure you are maximizing your contributions to those plans.

• Maximum contribution of $17,500/year or $23,000 for those aged 50 or over.
• Limits are for calendar year.

If you don’t have access to a workplace retirement plan, consider Traditional IRAs or Roth IRAs

• Maximum contribution of $5,000 or $6,000 for those aged 50 or over.
• You have until April 15^th of the 2015 to make 2014 contributions.

For Self-Employed workers, there are several options:

SEP IRAs

• Maximum contribution of 25% of compensation up to $52,000.  Employer funded only.
• Deadline to set up and fund plan by April 15^th of 2015 for 2014 contribution

Self-Employed 401(k)s

• Employee contribution maximum of $17,500/$23,000 plus up to 25% profit sharing
• Plan must be set up by December 31, 2014, but can be funded up to April 15, 2015

SIMPLE IRAs

• Allow employees to contribute pre-tax up to $12,000/year in salary or $14,500 if aged 50 or over.
• Employer contributes a small required match.
• Plans must be set up by October 1^st of the year you want to contribute to the plan.

For a great chart comparing small business retirement plans, check out Fidelity.com  https://www.fidelity.com/retirement-ira/small-business/compare-plans.

#2 Enroll in your Flexible Spending Account

My second favorite employee benefit (just behind retirement plans) has got to be the Flexible Spending Account.  You get to skip out on paying taxes on money you spend on medical and dependent care expenses, anyway.

This was especially great for me earlier this year when I (not my kids, but I, MYSELF) lost 3 pairs of my kids’ prescription glasses in 2 weeks.  Yes, for the first two pairs, there was rum on a beach involved, but the third pair was sheer stupidity.  At least, I could comfort myself that the purchase of the $600 worth of new glasses was with tax-free money.  Yay!

Flexible Spending Accounts can save you up to 40% (depending on your tax bracket) on medical and child care services.  You may put up to $5,000/year (family max) pre-tax in an account to pay for day care expenses.You may put up to $2,500/year pre-tax in an account to pay for unreimbursed medical expenses.

• Orthodontics
• Prescription drugs
• Co-Pays
• Acupuncture/Chiropractic/Physical therapy
• Prescription Glasses
• Over the counter drugs with a doctor’s prescription

Example:  Jeff is in the 25% federal income tax bracket and 4% state tax bracket.  Jeff’s daughter’s day care costs $1,000/month.  Jeff can put away $5,000 in his Flexible Spending Account and save $1,450 on the cost of day care for the year.  Hang in there, Jeff.  Someday she’ll be in first grade!

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