Though you could wait until the end of the year to review your finances and evaluate your spending, you could also start planning ahead. Yes, it is early January but why not be more prepared? Then you won’t have to deal with that end-of-the-year cram session.
You can start by using your debt payoff calculator to create a budget for this year, and then start prepping for money deadlines farther down the road. Five deadlines occur at the end of the year that you should be aware of and get organized for now. Here’s your checklist:
The Internal Revenue Service (IRS) sets a maximum contribution limit for employer-sponsored retirement plans every year. By 2023, workers who are younger than 50 can contribute as much as $20,500 to a 401(k), according to Kiplinger. If you are over 50, you can contribute as much as $27,000 this year.
Give it to charity now or pay it to the government by April 15th. That’s the way many people look at charitable contributions. Altruism is a good motivator, but practicality is okay when contemplating a tax liability. But if you make a charitable contribution after April 15th but before December 31st it can give you an added deduction when you file taxes.
Deferring your tax liability with a 401(k) or traditional IRA seems like a great idea until the tax rate on your distributions is expected to go up. Many investors choose to do a Roth IRA conversion to avoid this, turning pre-tax savings into post-tax savings. The deadline for this, if you want the tax liability to be on this year’s income, is December 31st.
If you are 72 or older you are required by law to withdraw a minimum amount from your pre-tax retirement per year. This is known as the Required Minimum Distribution or RMD. Due to the SECURE Act if your birthday was on July 1, 2019, or later you have until you are 72 to make your first RMD. You can push your contribution to as late as April of the following year after you turn 72, but do note that if you do push it to the next year you will have to take a second RMD before the end of the year. This rule applies to employer-sponsored retirement plans (401k, 403b, etc.) and individual retirement accounts (IRAs).
Once you hit 73-years-old, you’re required to take a minimum distribution from your retirement account every year. The deadline for this is December 31st. The amount of that distribution is calculated by dividing the fair market value (from the end of the previous year) of the retirement account by the life expectancy of the retirement account.
Though it is a long way off, don’t forget to take advantage of December 26th. It’s not a deadline per se, but it can be one of the best shopping days of the year. Merchandise goes on sale, stores are looking to clear their shelves, and prices are often negotiable. It’s a great day to buy something for yourself. Enjoy it, then attend to your December 31st deadlines.