Changing the conversation on your year-end financial checklist

Published 1:30 am Wednesday, December 21, 2016

WASHINGTON — What financial power moves do you plan before the year ends?

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:

(1) 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 income 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. It’s more likely you could use the funds to pay off some bills or pay down credit cards so that you don’t incur more interest.

(2) 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 already know, that you get a tax break.

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. It’s also easier for donors to earmark funds in smaller installments every month that can add up to a big contribution by year-end.

(3) 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.

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 one of my online discussions about his book, “Empire of the Fund: The Way We Save Now.”

(4) 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 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, even if it’s a small amount.

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.

(c) 2016, Washington Post Writers Group