Financial Advisor Insights

Year-end Financial Checklist

by Kristin McFarland, CFP® on November 14, 2017 in Financial Planning

The end of the year is a busy time for most people. Unfortunately, it is usually also the last opportunity to make financial moves that will count towards the current year. Depending on your employer, it may also be your window to change elective contributions for next year, or to opt into certain benefits. This year-end financial checklist can help you prepare to close out 2017 and get ready for 2018.

Contributions to your retirement plan at work

Last call to reduce your taxable income and save for retirement! If you have a 401(k), 403(b), or SIMPLE plan at work, you have until December 31st to make contributions that will count towards the 2017 annual additions limit. Depending on your employer, there may still be time to increase your contributions if you are not already maxing it out. In 2017, the contribution limit for individuals under 50 years old is $18,000 for 401(k) and 403(b) plans, with a $6,000 catch-up contribution for people over 50. If you contribute to a SIMPLE 401(K) or SIMPLE IRA, you may contribute up to $12,500 in 2017 and an additional $3,000 if you're over age 50. For more details on 2017 IRS limits, click here.

Before the end of the year you should also update your deferral choices to prepare for 2018, as the annual contribution limits have increased in some areas. For example, 401(k) and 403(b) participants will be able to add an extra $500 in their account next year. For more details on 2018 IRS limits, click here.

Retirement planning for self-employed business owners

Business owners want tax savings too! The two most common types of retirement plans for self-employed business owners are the SEP IRA and Solo 401(k). If you don't have a plan in place yet, it may not be too late. SEP IRAs are the most flexible type of plan to set up and fund. You can open and contribute to a SEP IRA as late as the company's tax filing deadline (usually April 15th, but longer if filing on an extension) for the funds to count towards 2017. An Individual 401(k) plan must be set up by the business's fiscal year end, however individual salary deferrals and employer/profit sharing contributions can be made as late as the tax filing deadline (usually April 15th, but longer if filing on an extension).

The total annual contribution limit for both SEP IRAs and Solo 401(k)s is $54,000 in 2017. However, the amount that can actually be added each year is subject to an additional limitation: a percentage of W-2 earnings or net self-employment income. In 2017, the compensation limits for these calculations increased $5,000 to $270,000.

SEP IRAs are funded solely by employer contributions. Individual 401(k) plans can be funded by a business owner in two ways: as the employee and the employer, subject to the maximum annual additions limit. Like a traditional 401(k) plan, maximum employee contributions in 2017 remains capped at $18,000 for the Solo 401(k). As previously mentioned, the employer component is subject to limitations based on earnings. These amounts will increase in 2018. For more details on 2018 IRS limits, click here.

For more on choosing between a SEP IRA and an Individual 401(k), click here.

Contributions to individual retirement accounts (IRAs)

Last call to reduce your taxable income (potentially) and save for retirement with a traditional IRA! Depending on your income, marital status, and whether you're covered by a retirement plan at work, you may be able to make tax-deductible contributions to a traditional IRA. However, remember that even if you do not qualify to make pre-tax additions to an IRA, you can still contribute on an after-tax basis, up to the stated limits. You may establish an IRA and make contributions up to the tax filing deadline - April 17, 2018 - in order to have it count towards 2017 taxes.

The annual contribution limit for traditional IRAs in 2017 and 2018 is $5,500 with an additional $1,000 catch-up contribution for those over age 50. Although this changes in 2018, in 2017, the income phase-out bands that determine whether all (or a portion of) contributions are deductible are as follows:

If you're covered by a retirement plan at work:

                                            Tax Filing Status & Modified Adjusted Gross Income Limits

Deduction Single Married filing jointly
Full $62,000 or less $99,000 or less
Partial; deduction begins to phase out More than $62,000 and less than $72,000 More than $99,000 and less than $119,000
Non-deductible  Above $72,000 Above $119,000


If you're NOT covered by a retirement plan at work:

                                          Tax Filing Status & Modified Adjusted Gross Income Limits

Deduction Single and married filing jointly (neither spouse covered) Married filing jointly - one spouse covered
Full Any $186,000 or less
Partial; deduction begins to phase out   More than $186,000 and less than $196,000
Non-deductible    Above $196,000


Tax-free growth with a Roth IRA. Depending on your tax filing status and your income, you may qualify to contribute to a Roth IRAThe phase-out range for single filers is between $118,000 - $133,000 and for married couples filing jointly $186,000 - $196,000 in 2017, which is scheduled to increase in 2018. Remember, money is added to a Roth IRA on an after-tax basis. However, if you wait until retirement to access the funds, the investment growth can be withdrawn tax-free. The annual contribution limit for Roth IRAs in 2017 and 2018 is $5,500 with an additional $1,000 catch-up contribution for those over age 50. As with a traditional IRA, you have until the following year's tax filing deadline to make contributions for the prior tax year. 

Did you know that once a year anyone - regardless of income - can rollover a 401(k) or 403(b) to a Roth IRA or convert a traditional IRA to a Roth IRA? To learn more, click here. 

Plan ahead for your year-end bonus

Whether you're expecting your annual bonus soon or just have extra cash on hand since you've reached the Social Security wage limit, now is a great time to think about possible uses for the extra money. A brokerage account is an individual investment account where you add funds after tax. There are no limits on how much you can contribute or what you can invest in. Also, there are no restrictions on what your holdings can later be liquidated for, or when. Sound too good to be true? Well, perhaps...the unlimited flexibility offered in a brokerage account means there are also no tax benefits. You will need to pay tax each year on interest, dividends, and capital gains, which may happen even if you do not sell any positions. To learn more about the benefits of a brokerage account, click here.

Rebalance your investments

Setting up an asset allocation for your portfolio is important to diversify your investments to meet your long terms goals and manage risk. Asset allocation is the composition of your portfolio - the percentage of your investments that will be put into different asset classes, such as stock funds or bonds (at a very high level). Over time the market value of your investments will likely change, which will also impact the weight of each asset class your portfolio is comprised of.

Portfolio rebalancing is the process of buying or selling assets to return to your original asset allocation. Why does this matter? Because without rebalancing you may be taking on more risk than necessary to meet your goals. Rebalancing may come with costs, such as tax consequences in taxable accounts and trade fees. Consider working with a financial advisor to develop an investment strategy for your entire portfolio rather than rebalancing each account as its own isolated account.

Darrow Wealth Management is an independent fee-only financial advisory firm in the Greater Boston area. To learn more about our 360° approach to wealth management, contact us today to schedule a free consultation. Wealth Management and Financial Advisors


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