End Of Year Money Moves

| December 4, 2017

Now’s the time to be anticipating money moves for next year.  To avoid losing valuable compounding time or growth, you want to be able to pull the trigger on January 1st.  Check into what your accounts and plans offer and ask questions in advance.

With year-end bonuses and raises coming up, certain accounts require tweaking.  For example, with each year’s payroll increase, my retirement plan contribution percentages can be adjusted.  I examine every payroll deduction and determine if I am gleaning the maximum benefit from each.  See below where I will fund my 2018 Health Savings Account contribution using an IRA transfer.  Because I won’t need a payroll deduction for that account, I can adjust my Flexible Spending Account contribution and reinstate my vision benefits.  I don’t pay for vision benefits each year, only the years that I plan on buying glasses.

In the financial planning workshop I conducted over the past three weeks, someone posed a question as to how to manage changes in the economy and the tax code.

My response explained that everybody needs to take advantage of every single benefit being offered.  Congress decides how we pay taxes but every citizen is at liberty to deploy available plans, accounts, and tax deductions.  It’s up to each person to work this from every angle.  Subsequently, their lifestyle should work with the leftovers.  When a 401(k) is funded to the maximum, it might be painful to live on the residual take-home pay but, by doing so, it sets up the individual for financial success.

Don’t confuse this with maxing out retirement plans and then living on credit cards.  That would not be smart.  Contribute up to the pain point, then work out your standard of living on the remainder.

Financial security is not just for the Rockefellers of the world, but for anyone that educates themselves (translation: if you can read this, you can educate yourself).  See my Related posts on Money Learning Checklists.

Going back to my Midyear Financial Checklist, I can assess my progress and see where I fulfilled promises to myself or fell short.  Yes, I fulfilled all my neurotic promises to myself.  I saved what I planned, scavenged for bargains, and squirreled money away for Christmas.  Moving on.

I’m in the express lane to retirement so my plans involve maximum contributions, the tax-free kind.  Anything that lowers my current taxable income and benefits my future is where I focus my resources.

It’s time for new stratagems to work on before the ball drops:

Transferring IRA money to my Health Savings Account

A Health Savings Account (HSA) can receive a one-time rollover distribution from the account holder’s IRA.  Now we’re talkin’.  Now I don’t have to reduce my taxable income for my 2018 Health Savings Account contribution.  The distribution must be a direct transfer from my IRA to the HSA.

The amount to be transferred cannot exceed the maximum contribution for the year and is net of the amount that my employer contributes.  Therefore, my transfer will be:

Maximum                    $3,450

Over 55 – catch up:     $1,000

Less employer contr   ($1,500)

Net transfer                 $2,950

It’s not a huge amount, but by doing the transfer, it reduces my traditional IRA subject to tax.

The transfer is considered a withdrawal from the IRA and it must meet the direct rollover rules.

I’m a big fan of the HSA and wish I had started it two years earlier.

The investment aspect of the HSA has been the most fun.  Currently, my HSA’s investment balance is approximately $3,700.  It’s invested in Vanguard’s Dividend Appreciation Fund (VDAIX).    The account earned almost $200 in dividends (tax-free) in the past six months.  That’s $3,700 more (tax-free) of a lasting account than I’ve ever had from a medical insurance policy.  Did I mention that the account is completely tax-free?

Other money advisors dictate that the HSA account money should be funded and not used.  Unfortunately, I’ve had to pay for some medical care, but at insignificant costs.  If I neglected medical issues to save a few bucks, it would be against my religion.

An HSA is a triple-win.  My contributions reduce my taxable income and my employer contributes.  The employer contribution is similar to a 401(k) match, or, free money.  My contributions are tax-free, the growth and income in the investment account are not taxed, and, the money is tax-free when withdrawn for medical costs.  You don’t get that deal with any other fund.

Overall, I would advise an HSA for anyone healthy enough to do so.  Read IRS Publication 969 to find out more.

Tracking my retirement contributions to reach $18,000 in regular contributions and add to the $6,000 catch-up pool.

I am currently tracking my employee retirement account to reach, but not exceed, the $18,000 maximum.  If I exceed that amount, I have to transfer it back, and I’d rather avoid that paperwork.  When the regular contributions reach $18,000, the catch-up portion can be funded.

For 2017, I wasn’t able to contribute the entire $6,000 catch-up, but because I’m funding my 2018 HSA contribution through an IRA transfer (see previous paragraph), I can increase my payroll deduction for the retirement plan catch-up portion.

Like I mentioned in the intro, my percentage to reach the regular $18,000 contribution will decrease, due to a salary raise.   Then, I can adjust the percentage for the $6,000 catch-up portion to supplement the regular contribution.

Contributing to my 2018 Roth IRA

I contribute the maximum to my Roth IRA as early in the year as possible.  In the past few years, I’ve chosen stocks.  This year, I’m working on balancing my investments.  Back in October, when I assessed my entire portfolio’s allocation, I found I’m lacking in long term treasury bonds. Therefore, I will be contributing to Vanguard’s VUSTX fund.

Setting savings and investment goals

Because I always take my own advice, I will set both a savings and investment goal for the year and increase both accounts simultaneously.  That will be around $2,000 a month after-tax, give or take, depending on my salary deductions for other tax-deferred accounts. Having both buckets gives me options and helps my focus.  No matter how small the amount I decide to transfer from my salary, I have ready accounts waiting for its deposit.

My favorite book for deciding which stocks to buy is in the 100 Stocks to Buy series.  100 Stocks To Buy In 2018 is available December 5.

This book provides a synopsis of the country’s lowest-volatility dividend paying stocks.  The authors rate their stocks on intangible elements such as branding, moat, quality of management, and customer loyalty.  What I like best is that it cuts down on the research time to evaluate multiple companies.  Who has the time to read annual reports of 100 companies?  The annual report will most likely be biased and requires reading between the lines to get an honest story, consequently, I’d rather read something from a third-party perspective.

Asset Allocation

To diminish the risk of my heavy stock investments, my investment goal this year is to balance my portfolio’s asset allocation. See related post: asset allocation post.  The stocks that I own have been doing great.  My research has paid off and my picks have grown anywhere from 25 – 90% in the past three years.  While I love those returns and the increase in my net worth, I really need to be equalizing potential stock volatility with more low-risk investments.  They may not be as exciting, but will offset a stock crash, if another one comes along.  I’m compelled to create an all-weather portfolio and these are the ingredients I need to get there.

Treasury Inflation Protected Securities – TIPS


Long-term Treasury bonds

For further reading, Wisebread did a good roundup of investment allocation suggestions:  Think Outside The Index When You Rebalance Your Investment Portfolio.

 Those are my major moves.

 Here are some general items to consider as we approach year-end. 

Plan for tax changes

Tax changes are as settled as Trump when he’s off his medication.  With all the hype and unrest, nothing’s certain yet.

If you suspect that you’ll be giving more to the government soon, you may need to adjust your withholding.  I recommend calculating an estimate based on proposed changes to see the difference.  Use Form W-4 to adjust withholding.

Set investing goals

If you’re not investing or invest on an infrequent basis, set up a separate bucket and attach some energy to it.  I know, you don’t know what you’re doing or how to start.  Investing education can be a lifelong endeavor and it’s better to do something instead of nothing.  M1 Finance offers many, many options to fit your preferences and it will take less than 10 minutes to set up.

Plan for life changes in the year ahead – You’re getting married, expecting a baby, retiring, getting divorced, or buying a home.  

If you’re doing any of the above, fasten your seat belt.  You’re in for a breaking-in period – emotionally, physically, and financially.  During that time, it may not be smooth sailing.  All of the above will cost money, so it’s safe to say that you should put money away at twice the normal rate.

Try to attach some feeling to saving for each event.  My personal attachment is getting a thrill from watching my balances increase whether from my deposits or from earnings.

People that associated pleasant feelings with a financial goal saved more.  A great example of this is about a married couple that put photos of their children on a savings envelope.  The act of saving was correlated to the welfare of their children and prompted them to save more because of the emotional attachment to the savings stash.

That should convince you that your money mentality controls your actions.


Note: This article originally appeared at Thoughts On The Money.

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Category: Personal Finance

About the Author ()

Dora DeLellis is a CERTIFIED FINANCIAL PLANNER™ and CPA in the New York metropolitan area. She has more than thirty years of experience in accounting and taxation. With a flair for budgeting and money management, she has explored writing to promote financial literacy. Dora’s objective is to present complex topics and explain them in an easy-to-understand, memorable manner. Dora earned a bachelor’s degree in accounting from Adelphi University in Garden City, NY, and a master’s degree in taxation from Baruch College in New York City. Dora is a member of the American Institute of CPAs, New York State Society of CPAs, and Financial Planning Association of Long Island.

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