As 2016 comes to a close in a few weeks and we start into 2017, here are some good tips to consider to start 2017 off with some good strategies that will hopefully become habits.
- If you’re not doing so already, set up your payroll deductions to save the maximum to your 401k. There’s plenty of time to your payroll allocated so your deductions start coming out on the first paycheck in January. The 2017 maximum contributions are $18,000 for those under age 50 and $24,000 for those age 50 or older. To deduct the max, simply take the number of pay periods you have annually and divide it into your maximum contribution amount. This will allow you to save the maximum amount over 2017. Consider doing the same to maximize your IRA contribution. Those limits are $5,500 (under 50) and $6,500 (over 50) respectively.
- Check your allowances on your W4. If you’ve been paying in quite a bit of tax at tax time or receiving a huge refund it may be that you’re having too little or too much withheld from your paycheck. Consider adjusting these amounts in order to improve withholding efficiency. There are also paycheck calculators online to help identify what your check will look like after withholding and retirement contributions.
- Refresh or build your emergency fund. Generally, this is 3 to 6 months of living expenses if you lose your job, become disabled, etc. Some individuals prefer 9 or even 12 months set aside. Whichever amount you choose, make sure it’s funded. A simple savings account with FDIC insurance is a great place to keep this money.
- Have an old 401k or IRA sitting idle? Now is an excellent time to consolidate those funds into one IRA with one custodian. This makes life simpler regarding keeping an eye on the funds as well and sticking to your investment and asset allocation strategies.
- Review your annual spending/budget. Take a look at your spending over the previous 12 months. Are there any changes you’d like to make? Any room for improvement? Chances are you may identify some favorable and not-so-favorable spending patterns that occurred throughout the year. Could you reallocate some money to retirement saving or emergency fund money? If tracking seems daunting, consider an app or website that helps with this type of planning such as Quicken or Mint.com. These tools allow an individual to see how they’re spending money daily and allow the creation of customized budgets and spending goals. They’re also very efficient and time-saving.
- Be sure to remember your 2016 required minimum distribution (RMD) and start thinking about your 2017 RMD. The tax penalty is pretty harsh at 50% of the amount not withdrawn. Don’t need the RMD money? Consider reinvesting it into a non-qualified account or using it to build your emergency fund.
*Originally published here.
Written by Sterling Raskie, MSFS, CFP®, ChFC®. Sterling provides expert guidance for your Retirement, Insurance, Education Funding, Investments and Income Tax issues and concerns. In addition to his contribution to the “Getting Your Financial Ducks In A Row” blog, you’ll find Sterling’s writings all around the internet. Sterling is also an Instructor of Finance at the University of Illinois Champaign-Urbana.