If you are expecting a year-end bonus from work, allow yourself a small treat but set aside most of it to pay off debt first.
Avoid racking up big credit card debt on holiday shopping that will linger months or longer into the new year. Credit card debt can carry the highest interest rates of any debt, often between 18%–25%, so unpaid balances can grow quickly. “Let’s say you purchase a present for someone for Christmas, and at the end of the month, you make the minimum payment on your credit card and leave an outstanding balance,” said William Harwood, an LPL wealth advisor based in South Carolina. “As interest grows on that balance, you end up still paying for that present in January, February, etc., until you pay off the balance and interest. If you’ve made any major purchases for presents or travel with a credit card, it’s best to pay off the balance as soon as possible. And if you’re unable to pay off all of your credit cards this month, be aggressive in the following months to pay it off.”
Research credit card offers to make sure you are getting a competitive deal for cash-back offers, interest rates, and other terms.
Contribute to retirement plans to optimize tax savings. If you participate in a retirement plan at work, such as a 401(k) or 403(b), the last day to make contributions for 2023 is Dec. 31, Harwood advises.
If you have a health care flexible spending account at work, be sure to spend any amount remaining so you do not lose it. Check your plan to see when the deadline is to file reimbursement claims.
Remember to take required minimum distributions from your retirement accounts, if that applies to you. “People who are 72 and older or who have an inherited IRA need to take out their required minimum distribution by Dec. 31 or they’ll incur a 50% penalty,” says Joy Watkins, principal, director of financial planning at Anchor Investment Management in Columbia. “We encourage our clients to take their RMD out early in the year and not to wait until the middle to end of December.
If you itemize your taxes, make charitable contributions before Dec. 31 so you can deduct them on your tax return next spring. If you’re mailing a check rather than donating online, but sure the envelope is postmarked by Dec. 31.
Review or update beneficiary designations on bank accounts, retirement plans and insurance policies. Beneficiaries can almost always be added to any type of financial account, Harwood says, including a 401(k), 403(b) or other retirement plan at work, IRAs and Roth IRAs, brokerage investment accounts and bank accounts. “You’ll need to change beneficiaries yourself,” he says. “Whoever is listed as beneficiary, such as a parent, would inherit the account, not necessarily your spouse or child unless that person is named.”
