The holidays are officially in full swing. You've got gifts to buy, office parties to go to, and eggnog to drink. While it would be easy to put off some important year-end financial planning until next year, creating a financial strategy now will prepare you for any challenges the new year may bring.

Your year-end financial planning checklist should include four main categories:

  1. Health and Wellness Planning
  2. Savings and Investment Planning
  3. Comprehensive Tax Planning
  4. Pro-active Planning

Health and Wellness Planning

First of all, use up your flexible spending account (FSA) funds. The FSA account is a special account that is used to pay for certain out-of-pocket health care costs such as medical and dental expenses, over-the-counter prescription medications, medical equipment like crutches, supplies like bandages, eyeglass repair kits, and diagnostic devices like blood sugar test kits, first-aid kits, and hot and cold packs. Year-end is also a good time to calculate your FSA allotment for next year based on your current excess or deficit. If you're not using an FSA, take some time to evaluate your health care costs for the year to determine if setting one up for the upcoming year would be a good move.

Make changes in your Medicare coverage.  Medicare open enrolment is the annual period when Medicare plan enrollees can re-evaluate their coverage and make changes if necessary. It begins on October 15 and ends on December 7 of the same year, with changes effective on January 1 of the following year. Upon receipt of your Annual Notice of Change (ANOC) and/or Evidence of Coverage (EOC) from your plan provider, review them for any changes in the costs, benefits, and/or rules for the upcoming year. Even if you’re satisfied with your current Medicare plan, it would be wise to look at other Medicare options that could better suit your needs in the coming year. If you’re not happy with a Medicare Advantage Plan you’ve chosen during Fall Open Enrolment, you can un-enroll from it during the Medicare Advantage Disenrollment Period (MADP).  In 2019, the new MADP will run from January 1 – March 31 every year with changes taking effect on the first day of the following month.

Other points to review include identifying significant changes in your life, business or financial circumstances that may require insurance adjustments, and a review of the cost coverage of current insurance policies.

Savings and Investments Planning

Next step in your year-end financial planning is to review how much you've contributed to your 401(k) or your workplace retirement accounts to maximize your contributions. If you're not matching your employer contribution, now is a great time to consider increasing to a match level beginning next year. If you've already maxed out your match, see if you can further increase your individual contribution to avail of further tax advantages.

No 401(k)? You may be able to save for retirement by drawing a traditional IRA plan from the coming year.

Consult a financial adviser on setting up a tax-free savings account (TFSA) or contributing to registered retirement savings plans (RRSP). They are good savings instruments that would serve you well in the future.

Regarding investments, sit down with a financial adviser at the end of the year to seek recommendations on the following:

  • Strategies to manage current and future income in relation to your current stock options
  • Employee stock options if available to you
  • How to review your asset allocations for rebalancing opportunities
  • How to analyze the fundamentals of your current investment portfolio positions
  • How to review your investment risk score

Year-end is the best time to review your investments to determine if they are still aligned to help you reach your goals. Whatever it is you're saving for, an annual status check will help you identify adjustments you can make to stay on track.

Comprehensive Tax Planning

Managing your marginal tax rate is another important end-of-year financial planning tip. Check with your accountant to determine if deferring income or accelerating deductions would help you reduce your tax exposure, especially if you're on the tax bracket boundary. In addition, reviewing your capital gains and losses may offer tax planning opportunities. Seek advice on certain key tax thresholds like the marginal tax rate, capital gains tax rate, itemized deductions, and personal exemption phase-out if any, or the surtax on investment income.

Also, consider the benefits of charitable contributions and various gift giving alternatives. It further reduces your taxable income.

Consult your tax advisor on your stock options to manage current and future income, or in choosing between accelerating income into the current tax year and deferring income to future years in light of your estimated tax picture. Ask your tax advisor to prepare an alternative minimum tax (AMT) projection to see if there's any tax benefit in waiting until January of the following year.

Consider the tax benefits of a health savings account (HSA) associated with a high-deductible health plan through maximum contribution into the plan. HSAs have triple tax benefits: (1) Your contributions are tax-deductible, reducing your taxable income, (2) any growth associated with the contributions is tax-free, and (3) it is not covered by the “use-it-or-lose-it” rule.

There are so many opportunities for tax breaks from your current savings, insurance or investment portfolios.  The year-end is a perfect time to put them in proper perspective to maximize their potentials.

Proactive Planning

Lastly, be proactive in planning for 2019 by requesting a copy of your credit report. Checking your credit report is your first line of defense against identity theft or credit card fraud. Look for red flags like names you don’t recognize, social security numbers that don’t belong to you, or accounts that aren’t yours, and take prompt action. Your credit report also tells you if you need to correct any inaccuracies in your account such as how much you owe, or whether or not you’ve paid on time. These errors can be costly and can affect your credit score.  

Be proactive in planning your estate. If you have an estate plan, make changes that accurately reflect your current circumstances. A will should spell out instructions on what your family should do if you’re no longer capable of deciding for yourself. Name a health care proxy, draw out a "living will" regarding end-of-life medical care, and name a power of attorney grantee. Talk to your family about your will. If you have parents in their advanced years, ask them about their requests as well. Review and update beneficiary designations of your retirement accounts and life insurance policies.

Financial planning is an ongoing process and periodic reviews of the various elements of your finances and their progress will lead to better results. Most of them can be accomplished quickly, and the benefits can last your lifetime.

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