Before the ball drops on New Year’s Eve, you can pump up your savings to squeeze as much out of 2014 as possible. Putting money into retirement accounts before year-end deadlines, opening new after-tax savings accounts and automating savings are all ways to ramp up your personal savings rate in the last days of the year.
SunTrust recently released a fourth-quarter checklist of items the bank encourages clients to consider before the clock strikes midnight on Dec. 31. The list includes selling securities with significant losses, making additional contributions to 401(k) accounts (keeping in mind that the 2014 limit is $17,500, with a $5,500 catch-up contribution for those age 50 or older), reviewing estate plans and updating beneficiaries on retirement and life insurance accounts.
To stay organized, SunTrust also encourages people to segment savings accounts into separate buckets, such as a vacation or new house, to make it easier to put money directly toward goals. That kind of planning can help maintain a savings habit over the long term, especially when those transfers are automated.
More end-of-year ideas include donating to charity, tapping out health savings accounts, and investing in energy-efficient improvements at home that can lower your tax bill.
Here are seven smart money moves to make before 2015:
Bump up your automatic savings. The Employee Benefit Research Institute reports that, on average, employees contribute just 7.5 percent of their income to their retirement accounts. But financial advisors generally recommend that most people save at least 15 percent to be on track for retirement, and even more for those who get a delayed start and don’t open up a retirement account until their late 20s or 30s.
Double down on retirement savings. If you’re under the annual 401(k) contribution limit, you still have time to reach it and can make contributions up until Dec. 31. For IRAs, you can contribute up to $5,500 for 2014 and $6,500 if you’re age 50 or older, and you can contribute up to the 2014 limit until April 15, 2015.
Consider opening an after-tax savings account. If you find yourself hitting up against the savings limit on your tax-shielded retirement account, consider opening an additional after-tax account that’s dedicated to your retirement. Just because the law prohibits you from putting more than $17,500 into your 401(k) doesn’t mean that’s all you should be saving — it’s just all you’ll save out of pretax money.
Use retirement accounts even during an employment break. Just because you’re not earning a steady paycheck doesn’t mean you should put retirement savings on hold. Spousal individual retirement accounts for non-working spouses and Roth IRAs can make this easy. Roth IRAs are useful for freelancers, students and people with unpredictable income streams because you contribute money to the account after paying taxes on it, which means you can decide how much to contribute in light of your other expenses. If you think your tax rate is lower now than it will be when you take the money out during retirement, you’ll benefit.
Get new glasses. If you haven’t spent the money in your employer-sponsored health savings account by the end of the year, you might want to consider stocking up on eligible expenses, from new glasses to contact lens solution. In most cases, money that isn’t spent is forfeited. The deadline for filing reimbursement forms for 2014 expenses varies, but many companies extend the deadline to mid-March 2015. Other potentially eligible expenses include dental work, chiropractor visits and dermatology copays.
Install solar panels. A variety of energy-saving home investments can end up reducing your tax burden. According to the IRS, tax credits are available for 30 percent of alternative energy equipment installed in your home, including solar hot water heaters, solar electric equipment and wind turbines. The IRS cautions that while the home doesn’t have to be your primary residence, it does have to be in the United States to be eligible for the credits, which expire Dec. 31, 2016.
Create a college savings account. Any contributions made to 529 college savings accounts before Dec. 31 are tax-deductible for the year. Plus, contributions make great presents, since anyone can contribute, including grandparents and friends. As long as the money is used for higher education, it is not subject to federal income taxes and in some cases is also exempt from state income tax.
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7 Ways to Beef Up Your Savings originally appeared on usnews.com
