The following post is by MPFJ staff writer, Laurie Blank. Laurie is a wife, mother to 4 and homesteader who blogs about personal finance, self-sufficiency and life in general over at The Frugal Farmer. Part witty, part introspective and part silly, her goal in blogging is to help others find their way to financial freedom and to a simpler, more peaceful life.
We’re into the last quarter of the year, which means that personal finance buffs like you and me are getting our year-end money ducks in a row, figuring out how we can end the year on a high note from a personal finance point-of-view.
With that in mind, I thought I’d share some year-end money moves for helping minimize your tax burden. It’s a smart money move to keep as much of your own money as possible in your pocket so that you can increase your ability to care for yourself and your family, and so that you’ve got extra money to give away where you see a need that tugs at your heart. Making smart year-end tax moves helps ensure you put yourself in a better position to care for yourself and those around you.
Here are some ideas for making your own financial situation more secure and helping increase the money you have to give to causes you’re passionate about.
Contribute to an IRA
Go Banking Rates reports that nearly a third of Americans have nothing saved for retirement. When you get to retirement age you’ll not only need cash for basic necessities, but potentially for rising medical costs as well. One way to save more cash for expenses during the retirement years is to sock some cash away in an IRA.
Those under age fifty can put as much as $5,500 per year in either a Traditional IRA, a Roth IRA or a combination of the two. If you’re over age fifty, you can put away up to $6,500 per year into one or more IRA accounts.
Putting additional monies into a Traditional IRA when possible will help reduce your taxable income and help you save more money for your retirement years at the same time. It’s important to note too that you can make a current-year IRA contribution as late as April 15th of the following year.
Max Out HSA Contributions
If you know you’ll have some upcoming medical expenses before the end of the year – or even for next year – now’s the time to start contributing more to an HSA account. For us it’s kids’ braces. Although our dental insurance plan pays up to $2,000 for each kid’s braces that still leaves nearly $3,000 that we need to pay out of our own pocket. As such, we’ll be ramping up HSA contributions in order to deduct as much money as possible before the end of the year for HSA contributions.
Current annual HSA contribution limits are $3,350 per individual and $6,750 per family. Those age fifty-five and older can make an additional catch-up contribution of up to $1,000. Since HSA monies don’t expire, you can even save them to use toward medical expenses during retirement, and the distributions are tax-free as long as they’re used for qualified medical expenses.
Give to Your Favorite Charity
Qualifying charitable contributions can consist of up to fifty percent of your income in some cases. If you’re looking to reduce your tax burden and do some good in the world, consider making a cash donation to your favorite qualifying charitable organization.
You can also gain a deductible contribution by clearing out the clutter in your house (up to $500 worth without a receipt) and donating it to a qualified thrift store or clothing/household item operation that has 501(c)(3) status.
Contribute to a 529
If you’ve got kids, grandkids or even nieces and nephews, consider opening up a 529 account with them as beneficiaries in order to ease your tax burden and help your family members save for college at the same time. Here is the general rule on 529 contribution limits for 2016, according to the IRS.
Are there contribution limits?
Yes. Contributions cannot exceed the amount necessary to provide for the qualified education expenses of the beneficiary. If you contribute to a 529 plan, however, be aware that there may be gift tax consequences if your contributions, plus any other gifts, to a particular beneficiary exceed $14,000 during the year. For information on a special rule that applies to contributions to 529 plans, see the instructions for Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.
If you’re looking to reduce your taxable income and do good by helping a family member save for college, 529s are a great contribution option.
How about you all? What steps are you taking to help ease your tax burden before the year is out?
Share your experiences by commenting below!
