Year-End Financial Checklist

checklist photoTry to do at least three things from this year-end financial checklist. Doing so will tidy up your 2015 finances and start your 2016 on the right financial foot.

1. Don’t leave money on the table.

If you have a flexible spending account (FSA) for health care expenses or dependent care, and you haven’t used all the money in it you’ll need to use the bulk of it before the end of the year.

The IRS changed the “use-or-lose” rule by allowing employees participating in health FSAs to carry over, instead of forfeiting, up to $500 of unused amounts remaining at year-end or to carry them over for 2.5 months (March 15th). These are different from Health Savings Accounts (HSAs) with a high-deductible plan in which you can roll over any remaining balance from year to year.

The “use-or-lose” aspect of dependent care FSAs still holds. You must use it by the end of the year. And in the Washington DC area, you probably used it up last Spring!

2. Review 2015 spending

Year end is a great time to figure out how much you spent this past year. To make it easy, use an online program like to link your online accounts. Many banks and credit card companies also give year-end summaries.

I suggest that you determine how much you spent and then break down that amount into categories. A quick way to do this task is to take your annual take home pay (from your last pay stub) and subtract fixed expenses (rent, debt payments) and any after-tax savings. The remainder is your discretionary spending.

You can use this quick analysis to set a spending and savings plan for next year.

3.  Change your passwords

If you are like most folks, one or more of your online account have been hacked in 2015.  So change your passwords on your email accounts and on your bank account / investment accounts.  These are the most important ones.  Take the time to change them now.  Don’t change them to the same password.  Try something new!

4.  Consider reducing your 2015 taxes by making a charitable contribution

As you are thinking about your charitable giving this holiday season, now is a good time to donate to a cause you believe in and be able to benefit from it on your 2015 taxes.

It is advantageous to donate appreciated securities because you avoid having to pay taxes on the gains and the charity gets the gain, not the IRS. Just remember, though, that a tax deduction is going to save you only a fraction of the total amount you donate. So in making that charitable contribution, do it because you really want to support the cause and not just for the potential tax write-off.

5. Contribute to your IRA or college savings plan.

If you have maxed out on your 401k contribution or if you don’t have a work-based retirement plan, consider contributing $5,500 into a traditional IRA or a Roth IRA if you can. You can add another $1,000 if you are over 50. Although you technically have until April 15th next year to make your IRA contribtuions, better to do it now and have it done with – as well as to get the earnings.

If you have maxed out on both your work-based plan and an IRA, make a 529 college savings plan contribution if you have kids/grandkids or even set one up for yourself. Only make this contribution if you have maxed out on both your work retirement plan and your annual IRA contribution. 529 contributions are only deductible for state, not federal, income tax purposes.

6. Automate your savings next year

If you didn’t max out on your work retirement plan, make your adjustments now. The maximum 401k contribution in 2016 is $18,000/year plus $6,000 in catch-up contributions if you are 50 or older.

If you are saving for another goal – to build a better emergency fund or to add to an IRA – set up automatic withdrawals from your bank account. Alternatively you can direct a portion of your paycheck to a savings account or brokerage account and not have to do it manually every month.  Automating your savings is one of the best and easiest ways to build assets.

7. Get your credit reports

I also try to get my credit reports on Veterans Day.  Not sure why I set it up that way, but it does help. If you haven’t gotten yours in the last 12 months go to the official site and download it for free.

These reports are especially important because you want to fix any mistakes that could be on the report. Even if you don’t anticipate needing new credit anytime soon, your auto insurance can be affected by your credit score. So its super important to make sure there are no mistakes, and if there are, to fix them before they hurt you when you really need to get credit.

8. Get ready to rebalance your retirement accounts at the beginning of next year

Year-end is a good time to review your retirement account asset allocation. Asset allocation – the allocation between stocks and bonds — is the single most important decision that influences the portfolio’s return. If you initially chose a 80% stock / 20% bond allocation and now the account has an 83% stock / 17% bond allocation, it is time to move it back to the original 80%/20% allocation.  By doing so, you will be selling your winners (selling high) and purchasing those funds that haven’t done as well (buying low).  Selling high and buying low are the keys to investment success.

It is only necessary to rebalance your accounts once per year.  The very end of the year right after your funds have made their annual dividend and/or capital distributions is a good time to do so.

9. Consolidate accounts

Consolidate your accounts if you have multiple checking, savings, retirement, and/or credit card accounts. Generally you don’t need more than one checking and one savings account.

If you use multiple credit cards, find the one with the best rewards and vow to use that one next year.  Don’t close the old accounts, because that could harm your credit score by shortening your credit history.

If you have several old 401k plans, you may wish to consolidate them into your current employer’s plan (if it’s a good one) or to a rollover IRA.  Consolidating is especially important if there isn’t much money in these old accounts and its a pain to keep track of them.  If you have sizable amounts in old account, you may want to keep them as is, especially if they have low fees and robust fund offerings.

10. Update insurance coverage if you had a life event

Consider reviewing your current insurance coverage if during the past  year you’ve changed your marital status, have changed the number of dependents (e.g, new child or a child has left home), or changed jobs.

Life:  Check whether you have a sufficient amount for any debt payoff, college education and living expenses for a couple of years.  If you are a federal employee, September 2016 will be a new open season for federal group life insurance.  This open season means you can increase your coverage amount without a health exam.

Auto:  Check whether the policy covers under and uninsured coverage.  It should be at least $100,000 in coverage. Consider raising deductibles for older cars and eliminating them completely for 8-10 year old cars.  Make sure liability coverage – amount you are responsible for in an accident in which someone else is hurt – matches your net worth.

Property:  If you have made any structural changes or improvements to your home, make sure those actions are reflected in your homeowners insurance. Check whether the policy contains replacement cost coverage (not actual value or depreciated value coverage) for your personal property. The personal liability level here doesn’t have to be super high because accidents in the home in which a guest would sue you are very rare indeed.

Bottom line: Use this year-end financial checklist to potentially save money this year and to spend and invest smarter in the coming year.


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