7 Ways to Manage Money Better Before 2019
In the weeks before the clock strikes midnight on January 1st, consider improving your personal finances. Laura covers seven tips to manage money better and hit your financial goals this year.
Laura Adams, MBA
Listen
7 Ways to Manage Money Better Before 2019
The New Year is when most people resolve to get their health and wealth back on track. But there are some great ways to manage money better that can only be accomplished before the year ends.
While I can’t help you resist holiday sweets or a second trip to the buffet, I can recommend simple ways to improve your personal finances before January arrives.
7 Ways to Manage Money Better at Year-End
- Make the most of your medical insurance.
- Drain your flexible spending account (FSA).
- Contribute the maximum to your retirement plan at work.
- Boost your retirement savings rate.
- Don’t forget your required minimum distribution (RMD).
- Make charitable donations.
- Review your emergency documents and account beneficiaries.
Use these seven tips to manage money better and hit your financial goals this year.
1. Make the most of your medical insurance.
When it comes to medical expenses, year-end is the time when you can squeeze more value out of your health, dental, and vision policies. Your benefits and deductible are tied to an annual schedule.
If you’ve already met your annual deductibles, you can save money by scheduling appointments and paying for healthcare goods and services before the end of the year. Otherwise, starting on January 1, your deductible resets.
In other words, take advantage of the time each year after you reach your deductible so you can get your insurance company to pay for as much of your medical expenses as possible. Delaying appointments means you could end up paying more than you have to.
But don’t go overboard on appointments because plans typically have a maximum number of visits for services such as doctor checkups, dental cleanings, physical therapy, and prescription eyeglasses. If you’re not sure if you’ve maxed out your insurance benefits for the year, ask your doctor’s or dentist’s office to find out what’s covered.
Take advantage of the time each year after you reach your deductible so you can get your insurance company to pay for as much of your medical expenses as possible.
2. Empty your flexible spending account (FSA).
If you have an FSA, it’s also linked to the calendar year. These spending plans are offered by many employers to help you save on a pre-tax basis for certain expenses—such as child care and medical bills—not covered by insurance.
However, there’s a deadline to spend your money in an FSA each year or you forfeit most of the excess. This is known as the “use it or lose it” rule. The cutoff varies by company, but it’s typically December 31.
If your employer adopts a grace period permitted by the IRS, you may have additional time to spend funds in the account after the New Year or to carry over a small amount, such as $500. If not, be sure you drain the fund before the end of the year.
You might opt for preventive care, such as a dental or vision checkup, new prescription glasses, or to purchase extra sunscreen, contact lens solution, or cold medicine, so you don’t lose one penny in the account. Check out FSAstore.com to see a huge list of FSA-qualified products and services.
Note that if you have a health savings accounts (HSA), there’s no spending deadline. Funds can stay in the account indefinitely with no penalty even if you change insurers, become uninsured, or are unemployed. So don’t confuse these two medical savings accounts.
- An FSA is a health savings account that’s offered only by employers, must be funded through payroll deductions on a pre-tax basis, and comes with an annual use-it-or-lose-it policy.
- An HSA is a health savings account that must be opened by an individual, permits tax-deductible contributions, and has no spending deadline.
3. Contribute the maximum to your retirement plan at work.
If you have a retirement plan at work, such as 401(k), 403(b), 457, or government Thrift Savings Plan, review how much you contributed for the year.
Every pre-tax dollar that you contribute to a traditional retirement plan is income that you don’t pay tax on until you make a withdrawal. By deferring taxes, you keep more money in the account that can grow over time.
Every pre-tax dollar that you contribute to a traditional retirement plan is income that you don’t pay tax on until you make a withdrawal. By deferring taxes, you keep more money in the account that can grow over time.
Additionally, many employers match a percentage of your contributions to company-sponsored retirement plans. Taking advantage of that benefit is a terrific deal because you receive free money to build a larger nest egg and cut your taxes at the same time.
To get this sweet tax benefit you don’t even need to itemize deductions on your tax return. But you do need to make your final contributions before December 31. So, if you can bump up your final contribution(s) to reach the annual limit, I highly recommend it—especially if you’re expecting a year-end or quarter-end bonus at work.
For 2018, you can contribute up to $18,500, or $24,500 if you’re age 50 or older. If you can’t afford to max out a workplace retirement plan this year, try to contribute enough to max out any employer matching funds.
If you have other types of retirement plans, such an IRA or a SEP-IRA, you have more time to finalize contributions. You can make deductible contributions for a tax year up to the due date for your tax return, including any filing extensions. For a one-page explainer on the different types of retirement accounts, download the free Retirement Account Comparison Chart PDF.
4. Boost your retirement savings rate.
Year-end is also the perfect time to increase your retirement contributions for next year. As I mentioned in a previous post, the annual limits in 2019 go up by $500 to $19,000, or $25,000 if you’re over age 50.
Make a goal to increase your retirement savings rate by at least one percent each year until you hit the maximum limit. And if you aren’t participating in a retirement plan at work yet, don’t make the mistake of thinking that you’re too young to plan for retirement, or that you’ll make up the difference when you earn more later.
Young people have a lot to gain by saving early because you can amass a fortune on far less than someone who starts later in life. In other words, postponing retirement contributions is expensive. Even contributing a small amount, such as $250 per month for a modest return over several decades, could give you close to $1 million to spend in retirement.
You can log on to your online retirement account to make contribution changes or ask your benefits administrator or an account custodian for help. Also check out Blooom, a service that analyzes investments in your retirement plan to check your allocation and cut fees.
5. Don’t forget your required minimum distribution (RMD).
After using a traditional retirement account to grow your money tax-free, the IRS eventually requires you to take distributions that are taxed. Starting the year you turn 70 1/2, the IRS forces you to withdraw at least a minimum amount from your retirement account, known as an RMD.
No matter if you need the money or not, annual RMDs must be taken by December 31. However, the IRS gives those taking their first RMD until April 1 of the year after you reach age 70½. But your second RMD is still due on December 31 of that same year, which could mean a big tax bill.
So, it’s best to take your first RMD by the end of the calendar year in which you turn 70½. Also, note that missing an RMD is expensive because you’ll be subject to a 50% penalty!
RMDs apply to owners of a traditional IRA, SEP-IRA, SIMPLE IRA, and various workplace retirement plans. But they don’t require any distributions from a Roth IRA while the original owner is alive. Also, if you have a workplace plan and are still employed, you can wait until April 1 of the year after you retire to start taking RMDs.
The amount you must withdraw is based on life expectancy tables and your account balance. There are online worksheets at IRS.gov to help crunch the numbers.
6. Make charitable donations.
When you make a donation to a qualified charity, you may also be eligible for a tax deduction, if you itemize. Make sure that if you itemize, your total deductions are greater than the standard deduction. If they’re not, stick with the standard deduction.
A charitable donation is deductible in the year in which it is paid. Putting the check in the mail to the charity constitutes payment. A contribution made on a credit card is deductible in the year it is charged to your credit card, even if payment to the credit card company is made in a later year.
7. Review your emergency documents and account beneficiaries.
If the year came with life changes such as a marriage, divorce, or having children, remember to update your beneficiaries and emergency documents, such as your will, healthcare proxy, and power of attorney.
Many people don’t realize that the beneficiaries named on your retirement and insurance accounts supersede your will. In other words, the people named will inherit them, even if your will says otherwise. So, if you have an ex-spouse that you wouldn’t want to inherit your retirement account after your death, update it pronto!
Get More Money Girl!
To connect on social media, you’ll find Money Girl on Facebook, Twitter, and Google+. Also, if you’re not already subscribed to the Money Girl podcast on Apple Podcasts or the Stitcher app, both are free and make sure that you’ll get each new weekly episode as soon as it’s published on the web. The show is also on the Spotify mobile app! Click here to sign up for the free Money Girl Newsletter!
Fun With Sparklers courtesy of Shutterstock
About the Author
Laura Adams received an MBA from the University of Florida. She’s an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura’s previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.