Savvy money moves to make before year-end

Whether you're working or retired, review 10 financial housekeeping to-dos.

  • Estate Planning
  • Financial Planning
  • Charitable Giving Account
  • IRA
  • Medical Insurance
  • Roth IRA
  • Estate Planning
  • Financial Planning
  • Charitable Giving Account
  • IRA
  • Medical Insurance
  • Roth IRA
  • Estate Planning
  • Financial Planning
  • Charitable Giving Account
  • IRA
  • Medical Insurance
  • Roth IRA
  • Update your beneficiaries.
  • Revisit your life and automobile insurance coverage.
  • Check your tax withholding.
  • Simplify your financial recordkeeping by taking advantage of direct deposits, online statements, automatic payments, and retirement investing contributions.
  • Check your credit reports.
  • Create or update a family or personal budget.

Want to feel on top of things and in control of your money? Then take the time to give your finances a year-end checkup. Doing this before year-end gives you enough time to take steps to save on 2018 taxes and set up your investments for success in 2019—without putting a damper on your holiday cheer.

Sure, there are important financial housekeeping tasks that you can tackle at any time of the year, like checking your credit reports or repricing your car insurance. But December 31 only comes once a year, and there are many key financial deadlines to meet before then.

Whether you're currently working and saving for retirement, approaching retirement, or embarking on new post-retirement adventures, here are some core tax, planning, and financial housekeeping things to do by year-end.

1. Maximize contributions to tax-advantaged retirement savings accounts

See if you can boost your tax-saving next year in your 401(k) or IRA.

Even if you contribute regularly to your traditional 401(k) or similar workplace retirement plan, see if you can contribute more and up to the max by December 31. You may be able to reduce your earned income by $18,500, the maximum you can contribute to a 401(k) for 2018—a potential $4,500 tax savings if you're in the 22% tax bracket. If you're age 50 or older, you can contribute an extra $6,000, for a maximum contribution of $24,500.1

And you won't pay taxes on any money—or the money it earns—until you withdraw it.

If you contribute to a Roth 401(k), you won't get a tax break this year, but your money can grow tax-free and generally be withdrawn tax-free in retirement.2 Either way, the more you contribute now, the better odds you have of reaching your goals.

No 401(k)?

You may be able to save for retirement and reduce your taxable income by contributing to a traditional IRA this year. In 2018, you can contribute up to $5,500 if you are under 50, and $6,500 if you are 50 or older. You don't need to have a job to contribute to an IRA either. A nonworking spouse can contribute to an IRA up to the contribution limit, as long as their spouse has as much or more in taxable income. Alimony is also considered income, so a nonworking person receiving alimony may also be able to contribute to an IRA.

Self-employed individuals have even more options. Are you freelancing, or running your own business? With a SEP IRA, you can contribute up to $55,000 or 25% of your eligible income, whichever is less, before taxes. Like a traditional 401(k), the money can grow tax-deferred, but is taxed as ordinary income at withdrawal.

HSAs can also be savings vehicles

If you have a health savings account (HSA) associated with a high-deductible health plan, see if you are contributing the max in 2018: $3,450 for an individual and $6,900 for a family, plus an extra $1,000 if you are age 55 or older. An HSA has triple tax benefits:3 Your contributions are tax-deductible, so you reduce your current taxable income. Any growth is tax-free, as are withdrawals if they're used to pay for qualified medical expenses now or in retirement. Plus, this is not a use-it-or-lose-it account, regardless of whether you change employers or insurance, any unused money rolls over.

Tip: If you are 50 or older, you could be saving more in tax-advantaged accounts, which can really add up. Read Viewpoints on Fidelity.com: 50 or older? 4 ways to catch up your savings.

2. Reduce taxes on investment gains

Tax-loss harvesting can help offset capital gains with losses from stocks, bonds, mutual funds, and exchange-traded funds (ETFs).

If you invest in stocks, bonds, mutual funds, or ETFs in accounts other than tax-deferred or tax-exempt accounts such as an IRA, 401(k), or HSA—a taxable brokerage account, for instance—you may be able to reduce taxes on investment gains through tax-loss harvesting.

The idea is simple: Offset realized capital gains with realized capital losses. That means selling stocks, bonds, and funds that have lost value to help reduce taxes on sales of winning investments.

Offset capital gains

In general, first consider ways to offset short-term gains on investments held for one year or less (which are taxed at the higher "ordinary income" rates) with short-term losses. Then apply short-term capital losses to long-term capital gains (held for more than one year and taxed at lower rates). Finally, match long-term losses with long-term gains. Working ahead of time with your accountant and financial advisor can help you identify the best candidates for this strategy before the December 31 deadline.

One warning: A "wash sale rule" is triggered when an investment is sold at a loss and the same or "substantially identical" investment is purchased either 30 calendar days before or after the sale. If a transaction is deemed a wash sale, any tax savings from tax-loss harvesting are recaptured.

No capital gains this year? If you are single or married and filing jointly, you can use realized capital losses to offset up to $3,000 a year in ordinary income, which is taxed at the same rate as short-term capital gains and nonqualified dividends. If you still have unused capital losses, you can carry them forward for use in future years until you use them all.

Tip: For more details on tax-loss harvesting, read Viewpoints on Fidelity.com: 5 tax-loss harvesting considerations.

3. Evaluate your progress toward your savings goals

Year-end is a great time to see if your investments are still in line to help you reach your retirement, college, and personal savings goals.

Whatever you're saving for—retirement, buying a home, paying for a child's college education, or another important goal—an annual status check will help you identify adjustments you can make to stay on track.

What will 2019 bring?

Have your circumstances changed? Did you experience (or do you anticipate) any life events or family changes (e.g., job change, marital status, move, illness) that could have an impact on your financial situation? Do you expect to fund any major purchases next year? Shifts in your lifestyle or goals may require shifts in your financial plan.

Market changes may also mean you need to make adjustments. Did this year's stock market rise leave you overly exposed to stocks? Did the pullback in bonds in the wake of Fed rate hikes leave you underexposed to bonds? Or maybe you have more cash than you want or need. Year-end is a great time to make sure your mix of assets is still in line with your goals and tolerance for market swings.

Perhaps most importantly, you'll want to check on your progress toward long-term goals, like retirement. For a quick high-level check on your retirement savings, answer a few easy questions and get your Fidelity Retirement ScoreSM. For a more in-depth analysis, go to the Fidelity Planning & Guidance Center, or meet with a Fidelity investment professional who can help you develop a tax-smart retirement plan.

Tip: To learn more, read Viewpoints on Fidelity.com: The guide to diversification.

4. Think about a 401(k) rollover or a Roth conversion

If you're interested in laying the groundwork for tax-efficient withdrawals in retirement, it's smart to have a mix of traditional and Roth accounts. That way you can withdraw monies from taxable and nontaxable accounts, to keep your taxable income in the lowest possible tax bracket.

If most of your retirement savings have been contributed to pretax vehicles such as traditional 401(k)s, 403(b)s, or IRAs, your withdrawals will be taxed at ordinary income rates. If you have had some large capital losses this year, consider converting some traditional IRA or 401(k) money into a Roth IRA, where withdrawals in retirement are tax-free.2 You'll pay income taxes now on the converted amount, but you can use realized losses to offset taxes due, and you may lower taxes in retirement.

Tip: For more on Roth conversions, read Viewpoints: Roth IRA conversion: 8 things to know on Fidelity.com. If you are considering a 401(k) rollover, read Viewpoints: Considerations for an old 401(k).

5. Consider charitable giving

Keep track of your donations to charities in all forms—and consider strategies that may qualify you for larger tax deductions.

If you itemize your taxes, donating to charities from a taxable account can reduce your tax bill. This is particularly true if you can contribute appreciated securities you have held in your account for at least a year. Doing so not only entitles you to a tax deduction (assuming you qualify), but also allows you to help eliminate the capital gains tax.

For non-cash charitable contributions over $250, you'll need a receipt that includes a description of the item and other details. Donations for the current tax year must be made by December 31. If you charge your gift to a credit card before the end of the year, it will count for this year, even though you might not pay the credit card bill until 2019.

You might also consider a donor-advised fund at a public charity, such as a Giving Account® from Fidelity Charitable®, which allows you to contribute and qualify for a tax deduction the same year. You can also contribute appreciated securities to minimize capital gains taxes and qualify for a tax deduction. You can then recommend grants immediately or over time to virtually any IRS-qualified public charity.

Tip: If a friend or family member has a 529, look into Fidelity's online College Gifting Program for the benefits of gifting when it comes to growing savings for college.

6. Talk to your family about your legacy goals

In addition to a will, there are other documents that everyone should consider, to help protect their assets and help the family deal with both health and financial matters.

Estate planning isn't just for the old or very rich—or just for year-end. But the holiday season often brings families together. That's an opportunity to share your hopes, dreams, and legacy plans with your loved ones.

Regardless of your age, there are important things you can do. A basic plan includes a will, as well as instructions for what happens if you can no longer make decisions for yourself. Naming a health care proxy, establishing a "living will" regarding end-of-life medical care, and naming a power of attorney allows these individuals to clarify your wishes. Talk to your family about your hopes too. If you have aging parents, talk to them about their requests as well.

Financial and medical powers of attorney are 2 different legal documents, and, for some, it may make sense for them to be held by 2 different people, while for others, it may make sense for them to be held by the same person. In either case, consider someone you trust wholeheartedly. The person you name as financial power of attorney will be opening your mail, contacting your banks, transferring your assets, and paying your bills, if needed. Your medical power of attorney (which may be called your health care proxy, depending on where you live) will make medical decisions when you are incapable of doing so.

Tip: See our overview of estate planning to learn more, or use the Fidelity Estate Planner® to get started on the estate planning process.

It's worth it

Wherever you are along life's journey, these to-dos are important parts of a year-end financial checkup. Most of them can be accomplished quickly, and the benefits can last a lifetime. So get started now, and use the year-end to make tax-smart moves that can help set you up for a prosperous new year.

Next steps to consider

Consider an IRA

Take advantage of potential tax-deferred or tax-free growth.

See how you're doing

Get your Fidelity Retirement ScoreSM—like a credit score for your retirement.

Retirement rules of the road

Our 4 simple guidelines can help you reach your retirement goals.

1. Make sure to take your required minimum distributions (RMDs)

Stay on top of RMD deadlines—or you may face potential penalties and higher tax brackets.

Once you reach age 70½, you're required to withdraw a certain amount (your RMD) from your traditional retirement accounts each year.4 If you have a traditional IRA, you can choose to delay your first RMD (and only your first) until April 1 of the following year, however; if you delay your first distribution, you'll be required to take 2 RMDs in 1 year, which could bump you into a higher tax bracket.

Regardless of what you decide, don't miss the deadline, as this can be a costly mistake. The IRS can impose a significant tax penalty, 50% of the amount not taken on time. If you don't need the RMD proceeds to cover near-term expenses, you can always reinvest the money in a brokerage account to generate potential growth or income.

There's no need to wait until December to take your distribution, and risk missing the deadline. You can have your RMDs calculated automatically each year and taken out of your account on a schedule that works for you—monthly, annually, or on a customized schedule.

Tip: See how required minimum distributions work, and how to manage them. Think twice about delaying your first RMD. It could boost the taxes you'll pay on the money you take out, affect the rates you pay for Medicare insurance, and potentially put you in a higher tax bracket the following year.

2. Manage withdrawals from taxable, tax-deferred, and tax-exempt accounts

Wait until the time is right for withdrawals from tax-exempt accounts like Roth IRAs, Roth 401(k)s, and HSAs.

How and when you withdraw money from your retirement accounts can affect how long your savings will last, as well as your current-year tax bill. In general, if you are age 70½ or older, it makes sense to take your RMDs first, then take withdrawals from taxable accounts (beginning with investments taxed at low capital-gains rates), followed by tax-deferred accounts like traditional 401(k)s and IRAs, which are taxed at higher ordinary income rates. Tax-exempt accounts—Roth IRAs, HSAs, and Roth 401(k)s—come last.

Tip: Depending on your tax situation, you may want to reduce your withdrawals from a tax-deferred account and instead withdraw from your tax-exempt Roth accounts. Why? Your withdrawals from tax-deferred accounts are treated as ordinary income and may bump you into a higher tax bracket. This strategy can be complex, however, so be sure to consult your tax advisor. Don't forget to take your required minimum distributions (RMDs) regardless of which withdrawal strategy you choose.

3. Review your retirement income plan and investment strategy

If your lifestyle or goals change significantly—or, after big moves in the market—that's the time to review your investments and, if necessary, rebalance.

It's essential that you have a retirement income plan in place that generally seeks a balance of growth and wealth preservation over time—especially when there's a risk of market downturn. As investments gain or lose value, you should review and adjust your mix of stocks, bonds, and cash to ensure that it remains aligned with your goals and risk tolerance. Life events may also dictate changes. You may also find that managing your portfolio is easier if you bring all your accounts under one roof.

When rebalancing your portfolio, you'll want to take taxes into consideration. So make sure to work with a tax professional and financial advisor.

Tip: One way to keep on track is to set up a year-end review with an investment advisor.

4. Maximize the power of charitable giving

Consider QCDs as a giving strategy to fulfill RMD requirements if you're 70½ or older.

In addition to donor-advised funds, another giving option that you may want to consider is a qualified charitable distribution (QCD). A QCD is a direct transfer of funds from your IRA custodian, payable to a qualified charity, and this becomes an option once you've reached age 70½. A QCD counts toward your RMD for the year, up to $100,000, and isn't included in your taxable income.

Tip: QCDs can offer significant advantages, but the rules are complex—so be sure to consult with your tax advisor. A caveat: Donor-advised funds cannot be recipients of QCDs. Visit the Fidelity Learning Center and read about the basics of QCDs on Fidelity.com.

It's worth it

Wherever you are along life's journey, these to-dos are important parts of a year-end financial checkup. Most of them can be accomplished quickly, and the benefits can last a lifetime. So get started now, and use the year-end to make tax-smart moves that can help set you up for a prosperous new year.

Next steps to consider

An easy way to plan for RMDs

Consider our Simplicity RMD FundsSM and automated withdrawals.

Create retirement income

Create or fine-tune an income plan in our Planning & Guidance Center.

Talk about money with family

See how to have important discussions about health, wealth, and legacy plans.