Smart Financial Moves to Make Before Year-End


OK, it’s official. While watching televised football games this weekend, I noticed that every other commercial advertisement had something to do with the holiday season. We are within weeks of turning the calendar into a new year. Lucky for you, it’s not too late to do some things that will help to improve your financial situation. Not all the following ideas will be appropriate for your situation, but if even one can help you save money, it will be worth the read. I should also note that these are just a few of the things you should consider before the end of the year. I will address some of the others in a follow-up post.

Let’s start with one that if you don’t get it right, it can really cost you. If you are over 70 1/2 and have an IRA account, you must make your required minimum distribution (RMD) by the end of the year. This is one deadline you don’t want to miss because missing it really makes the IRS unhappy. If you fail to make your RMD, the tax penalty is a huge 50% of the amount you were supposed to take out of the IRA. That means that, if your RMD amount is $10,000 and you miss the deadline, you owe the tax on the $10,000 plus a $5,000 penalty!


It’s such an ugly penalty that you shouldn’t test it. Make your RMD now. If you are a client of our firm and you haven’t made your RMD yet, we will be processing it within the next week or so. We don’t want to take a chance on some paperwork error. We want to get it done with plenty of time to spare. I do need to point out that there is an exception to the RMD rule. If you turned 70 1/2 in 2018, you have until April 1, 2019, to take your distribution. That could be good planning, but you’ll need to make two distributions in 2019.

While we are on the subject of RMDs, you might also want to consider a qualified charitable distribution (QCD) if you are charitably inclined. The new tax law that went into effect this year gave us all an expanded standard deduction. That means that most of us will no longer be able to itemize and deduct our charitable contributions. However, if you are required to make a required minimum distribution, you can make your charitable contribution directly from your IRA. The amount you donate to charity counts toward your RMD and does not count as income, which means you are effectively getting a tax deduction for your gift in addition to the standard deduction.

For those of you who are not retired yet, there are still some moves you can make. If you have a flexible spending account (FSA) through your employer, you’ll want to spend down that account. An FSA allows you to make pre-tax contributions into an account that you can use to pay medical expenses. In effect, it allows you to pay health care expenses with tax-free dollars. The catch is that you must use it all before year-end, although some plans allow you to carry over up to $500 into the following year. So, if you still have cash in the account, figure out where you can spend it. Buy new glasses, go for an end-of-year checkup, get your teeth cleaned. Don’t let the money disappear. Use it or lose it.


Somewhat related to the FSA is a health savings account (HSA). If you have a qualified high-deductible health insurance plan, you can contribute to an HSA. It works similarly to an FSA: You make pre-tax contributions into an account that you can use to pay eligible health care costs. However, the HSA gives you an unlimited amount of time to reimburse yourself. So, gather your medical expense receipts that you paid throughout the year. If you like, you can reimburse yourself this year. However, for many folks we recommend letting the account grow, paying expenses out of pocket, and letting the account grow all the way into retirement, when you will typically have larger medical expenses. You’ll still need to prove the expenses, so get those receipts together now.

These ideas will have a varied degree of impact on your financial situation. If you miss your RMD, it will be a big impact. Not reimbursing yourself for an FSA expense might be a smaller impact. It’s important to note that the people who are financially successful get that way by making a lot of good decisions, whether the impact is large or small.