Singletary: Change the conversation on year-end checklist
By Michelle Singletary
Published: December 23, 2016, 6:01am
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What financial power moves do you plan before the year ends?
Need some suggestions? You’ve no doubt seen some of these real headlines or ones that are similar:
• 10 Money Moves to Make Before Year End
• 7 Financial Moves to Make Before 2017
• 10 Ways to End 2016 on a Financial High Note
In the past, I’ve provided my own year-end financial checklist. But this time, as I was reading the recommendations of others and contemplating what I might pass along, I came to this revelation: Much of the advice just doesn’t make sense for the average low- to middle-income person.
I want to change this annual conversation to something more useful. So let’s look at four impractical financial moves versus the real life practicality of year-end checklist items:
• Deferring your income.
Why it’s impractical: Typically you’re told to ask an employer or customer — if you’re self-employed — to hold off paying what you’re owed so that you can lower your tax bill. The theory is if you push that tax burden to the next year you pay less income tax.
Take your money now. Why it’s practical: Many people are living paycheck to paycheck. They need money right now, not next year.
• Making charitable contributions. This advice is paired with the point that your gift is tax deductible.
Why this is impractical: What bothers me about this tip is the last-minute nature of the advice. You’re reminded, as if you didn’t know, that you get a tax break.
There is a noticeable effort by charities to encourage people to give during the holiday season because they know folks are in a giving mood. But the need is great all year long.
Make charitable giving a part of your budget. Why this is practical: Imagine how much easier it would be for nonprofits to serve the community if they had a steady flow of funds throughout the year.
Of course the tax break is a bonus but — if you can — make regular charitable contributions a permanent priority in your budget.
• Selling portfolio losers.
Experts call this strategy “tax loss harvesting.” It’s when you sell stock that has declined in value so that you can realize a tax loss. As the advice goes, the loss offsets your investment gains, thereby lowering your tax bill.
Why this is impractical: Many people aren’t investing in individual stocks. I’ve found folks aren’t even sure what’s in their 401(k). So the recommendation that investors should be watching and waiting to capitalize on portfolio losses is ludicrous.
Invest in a low-cost index fund. Why this is practical: “Index funds avoid the drama and rampant errors involved in trying to pick individual winners in the stock market,” William Birdthistle said during an online discussion.
• Maxing out retirement account contributions.
In an ideal financial world, people would be able to take full advantage of saving in a 401(k).
Why it’s impractical: Do you know how much it takes to max out?
For 2016, the maximum limit for employers who participate in a 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is $18,000. In reality, most Americans aren’t saving enough for retirement. And they certainly don’t have a stash of cash ready to max out their retirement account at the end of the year.
• Increase your contribution or start saving.
Why it’s practical: I don’t want you to stress about maxing out. I want you to get there but it may not be possible right now. Instead, look at what you’re saving and see if you can increase it. If you aren’t saving anything, please start.
I’m all about realism. When the new year rings in, I want you to be ready to improve your finances or that of others with some realistic, actionable money moves.
Michelle Singletary welcomes comments and column ideas. Reach her in care of The Washington Post, 1150 15th St. N.W., Washington, DC 20071; or singletarym@washpost.com.
