7 things to do before year-end to get financially organized, according to a financial advisor

Welcome to Select's newest advice column, Getting Your Money Right. Once a month, financial advisor Kristin O'Keeffe Merrick will be answering your pressing money questions. (You can read her first installment here on what to do with your excess cash.) Have a question you want to ask? Send us a note at AskSelect@nbcuni.com.

Dear Kristin, 

I know there are things I should be focused on before the end of the year with regards to my finances, but I would love a good checklist to ensure I am ending the year on a strong note. Can you help? 

Happy Holidays!
Organized in Oregon 

Dear OIO, 

When you're a financial advisor, you get slammed in January. Everyone spends the holiday season going over their goals and dreams for the New Year. Getting "financially fit" falls very high on the list of resolutions.

But what if I told you that it was just as important to focus on your financial hygiene in December? December can be crazy as everyone is generally rocking around the Christmas tree and spending too much money. But the actions you take in the last month of the year can be very impactful for many reasons. Here are some things you should focus on before year-end:

Your 401(k) contributions are tax-free contributions, which means that you do not pay income on the money that you contribute to your 401(k). You can contribute up to $19,500 per year ($6,000 more if you're 50 or over). Contributing to a 401(k) allows you to pay income tax only when you withdraw money from the plan in the future, at which point your income and tax rate may be lower or you may have more deductions available to offset the income. If you have not maxed your 401(k) this year but would like to, make sure to alert your 401(k) administrator (usually someone in HR or payroll) so you can increase your contribution for the last month of the year. 

IRA contributions don't have to be made until you file your taxes but remember that you can contribute up to $6,000 to your IRA or Roth IRA each calendar year ($7,000/year if you're 50 or older). In some cases, depending on your income, you may be eligible for a tax-deduction. 

If you utilize a 529 college savings plan to save for college, make sure to make your full 2021 contribution before year-end. In some states, your contribution is tax-deductible (make sure to check your individual state's plan to learn more). You can make a $15,000 contribution per account. If you're married, you can do up to $30,000 per year. Don't forget that 529 accounts grow tax-free if used for educational costs.

A required mandatory distribution (RMD) is a taxable distribution that the IRS requires you to take from your IRA if you're over the age of 72. Also, if you're the beneficiary of an IRA of someone who is deceased, you're also required to take a mandatory distribution. The amount that you're required to take is based on a formula that the IRS created. It factors in your age and the size of the overall IRA. Don't forget to withhold taxes! 

If you're a business owner, this is crucial to-do before year-end. Also, if you're at or near the next tax bracket, you should also pay close attention to anything that might bump you up. 

• If you think you're in the danger zone of getting bumped to a higher tax bracket, consider making a charitable donation (see below for more on that). 
• Determine if you should accelerate deductions or defer income, potentially allowing you to minimize your current tax liability. Sometimes your employer will allow you to defer bonuses to the new year. Also, if you're a business owner and are expecting a payment, perhaps see if it can be paid in the new year. Check with your accountant.

Charitable giving is good for the soul and for tax mitigation. Make sure to officially make your donation before Dec. 31, 2021 for it to count toward your 2021 tax year. There are many different giving strategies that you can implement. They include: 

• Giving good old fashioned cash (or check)! 
• Donate gently used items and clothing
• Donate appreciated securities: If you own stock that has appreciated over the years, you can receive an immediate tax deduction, and this can also help you avoid paying capital gains tax on the appreciated portion of their value. Gifts also have the potential to reduce future estate taxes. 
• More sophisticated gifting options: Gifting is a serious business. There are ways to gift through charitable remainder trusts and charitable lead trusts. You can also gift life insurance. If you're considering these options, please make sure to coordinate with a financial advisor, an attorney and potentially an accountant

In the investing world, we use a term called "tax-loss harvesting" where you evaluate whether you can benefit from selling a losing investment to offset gains or establish a deduction of up to $3,000. Excess losses also can be carried forward to future years. Keep the following things in mind: 

• Short-term gains (gains that resulted in a sale of less than 366 days) are taxed at a higher marginal rate. You want to aim to reduce those first.
• Don't disrupt your long-term investment strategy when harvesting losses 
• Be aware of "wash sale" rules that affect new purchases before and after the sale of a security. If you sell a security at a loss but purchase another "substantially identical security" within 30 days before or after the wash sale, the IRS will consider that a "wash sale" and disallow the loss deduction. 
• Talk to your financial advisor about what they recommend as the best tax-harvest strategy 

Making sure to evaluate any life changes from the past year or the upcoming year is an important part of financial planning. Moving to a new state, getting married or divorced, having a child, changing jobs or retiring are all important life changes. If you think that you have had a material life change that could impact your financial life, it could be a good time to talk to your financial advisor. 

In general, if you think life is getting too financially complicated to handle on your own, it may be time to hire someone to help you. Perhaps that could be your New Year's resolution.

Hope your holiday season is a blast! Just don't spend too much money. 

Kristin O'Keeffe Merrick is a Financial Advisor and money expert at her family-run firm, O'Keeffe Financial Partners, located in Fairfield, NJ.