Have you made your desired charitable contributions for the year? Because charitable deductions are discretionary, you can look at your finances and your tax situation and easily adjust the amount you
give to the charity of your choice. “If a big tax hit is coming your way, you may want to make a bigger charitable contribution before year end,” says Rick Edinger, Thrivent Financial director of advanced and retirement consulting. And remember, tax laws regarding donations have changed since 2006. You now must have a bank record or a written communication directly from the charity. For specifics on regulation changes, visit www.irs.gov.
Do you know what other deductions or credits you’ve earned this year? Some people are unaware of tax deductions or tax credits for which they may be eligible, says Edinger. A common example: nonbusiness energy credits for purchases such as new insulation or windows for a home. Make sure you study all of your options with your tax advisor or link to some of the online resources we’ve compiled at www.thrivent.com/magazine/links.
Have you checked your withholding? Are you having taxes over- or under-withheld from your paycheck? If you are under-withholding, assess why and consider a different strategy so you can avoid an unexpected tax bill next April.
“If you over-withhold, you’re making a free loan to the government,” Edinger notes. “Some people see over-withholding as a forced savings program, but that money could be put to work.” Talk with your financial representative about ways you could use those extra funds.
Do you have a flexible spending account or a dependent-care account? If so, are you on track to spend that use-it-or-lose-it money before the deadline runs out? Even though many plans allow you to submit receipts until March 31 of the next year, the actual expenses need to be incurred before Dec. 31. Now’s the time to take stock of what you’ve spent and make sure you have all of your paperwork in order.
Is your retirement strategy on track? If you have a 401(k) plan at work, are you fully funding it? Or, are you at least saving enough to get your employer’s match? You might want to make adjustments now so you don’t walk away from “free money.” If you don’t have a 401(k), are you stashing as much as you can in other retirement investments? Any little bit helps.
If your 401(k) is maxed out before the end of the year ($15,500 elective deferral limit for 2007), Thrivent Financial representative Kevin Knoernschild of Andersonville, Tennessee, recommends working with your financial representative to review options for your additional investment dollars.
Are you retired and pulling an RMD? Beginning at age 70½, you must pull out a required minimum distribution (RMD) each year from retirement accounts such as IRAs and 401(k)s. Do you know how much you’re required to withdraw by Dec. 31? “It’s surprising how many people don’t,” Knoernschild says. The financial institutions that manage your accounts send you notifications each year. If you’ve lost yours, contact the institution pronto. If you’ll hit age 70½ next year, now’s the time to begin planning.
What do you want to do with your RMD? If you don’t need part or all of the RMD, and you’re thinking of leaving the retirement account to your children or your church, Knoernschild might suggest a better answer: Consider using the RMD to pay the annual premium on a life insurance contract that will magnify the size of your gift and go to your beneficiary income-tax free.
Is your insurance coverage up to date? Updating insurance is often one of the last things on people’s to-do lists, according to Edinger. “Part of it is due to the perceived complexity; part of it comes as a result of the emotional issues.” If you are the breadwinner, how long has it been since you have seriously studied the amount of life insurance necessary to protect your family in the event of your sudden death? What about disability insurance? Now’s a good time to reassess your needs and goals.
Is your will up to date? Or does your new status as a parent or grandparent inspire you to rethink your future beneficiaries? Add this to the list.
Often, people have a hard time moving these items to the top of their list. Edinger can empathize: “I totally understand the desire to procrastinate on this stuff. A lot of it isn’t very exciting,” he notes. Still, when it comes to finances, if you don’t make your own decisions, life—and the tax man—will make them for you.
So, maybe it’s a good time to move financial housecleaning up on your list. Oh, and by the way, the garage isn’t going to clean itself, either.