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| "Column: Ready for the New Year? Don't Forget Your Financial Checkup - Tampa Bay Business Journal" |
As we dive into January, bustling with the post-holiday return to work, it's crucial to carve out some time for a financial checkup, especially on your retirement savings.
The beginning of the year serves as an opportune moment to reflect on your financial journey and plan for the future. To fine-tune your financial and retirement strategies, explore ways to trim your taxable income, optimize charitable contributions, maximize your retirement savings, and allocate additional funds for education.
Here are three key areas to concentrate on early in the year, along with some practical tips to help you stay on the right financial track and work towards your retirement goals.
Minimize Taxes and Maximize Impact for Charitable Giving: Many of us tend to donate to charitable organizations towards the end of the year, but taking a moment at the start of the year to plan your giving can yield significant financial benefits. Thoughtful decisions about how you donate can not only enhance the impact of your contribution but can also result in a tax break.
For instance, donating appreciated assets like stocks or real estate, rather than cash, can help you avoid taxes that might be incurred upon selling the asset. Additionally, the recipient organization won't be liable for those taxes either, allowing you to donate the full value of the asset rather than a reduced after-tax amount.
Another effective strategy is the use of a donor-advised fund. This straightforward fund, established through a 501(c)(3) organization, provides an immediate tax deduction upon donation. You can then guide the sponsoring organization on how to allocate your contribution across various investment options.
Make the Most of Retirement Savings Accounts: Consider reviewing your retirement contributions at the beginning of the year. Retirement accounts, such as 401(k)s, remain potent tools for achieving your retirement objectives. Each year, you have until December 31 to contribute the maximum amount allowed, which varies based on your age.
Crucially, many companies match a percentage of retirement contributions, essentially providing free money. Failing to contribute the maximum amount may mean leaving valuable money on the table. Even if you don't reach the annual maximum, your contributions play a vital role in reaching long-term retirement goals and can reduce your total taxable income.
Get a Head Start on Saving for Your Children’s Education: Incorporate planning for your children's education into your new-year financial checklist. A tax-advantaged account, like a 529 savings plan, can be a smart way to save for qualified education expenses. Anyone can contribute to this versatile savings account, which supports funding for college or certain K-12 expenses.
Investments in 529s grow tax-deferred, and withdrawals are federal tax-free when used for qualified education costs. While these accounts can be opened by anyone, parents or grandparents typically establish them on behalf of a child or grandchild. The money grows on a tax-deferred basis, and as long as it's used for IRS-defined qualified education expenses, withdrawals remain exempt from both state and federal taxes.
Taking these steps early in the year ensures you're proactive in managing your finances and setting a positive trajectory for the months ahead.