Little in the world is as mundane and boring to most Americans as financial necessities, including insurance, income taxes, and a host of other complex financial considerations. At the same time, few topics are as important in the long term. Writing weekly about these topics is a challenge, but one which I take seriously. After all, what subjects affect a larger percentage of the population than money?

While I have long advocated for tax planning to be a year-round pursuit, the final quarter of every calendar year deserves the most thorough analysis. As the calendar phases out, it takes with it opportunities both for realizing gains and preventing unnecessary losses and taxes.

Retirement account contributions should be maximized. Employer Plans, including 401(k) and similar, are generally funded through payroll deductions that count only for the year in which they occur. Many Plan participants fail to max out their available contributions, although they are planning to do so.

Employers will furnish Plan rules and payroll histories for participants, from which a simple calculation will demonstrate whether the current contribution pattern will result in the desired outcome. Deductions come from payroll deferrals and must be planned in time for the employer to react.

Sadly, opportunities abound for disappointment due to under-contributing. Fortunately, catch-up contributions are available for Plan participants who will be at least 50 years old as of the last calendar day. Employees who will turn 50 late in the year often wait too long to adjust their withholding accordingly. For Company Plans, the basic “catch-up” limit is $8,000, which can be spread over several pay periods, given time.

However, even better opportunities exist for some age groups. The $8,000 limit is extended to $11,250 for participants who will be 60, 61, 62, or 63 at year-end. For many, this would be easier to budget with more payroll periods ahead. These higher limits are available only if the Employer Plan allows them. If yours doesn’t include the provision, request an amendment.

This year, participants whose prior-year W-2 incomes (from the same Employer) were over $150,000 must be made Roth-style. No tax deduction will be available for that portion of the annual contribution.

IRA rules are not limited to activities performed during the calendar year to which they apply. We will discuss those rules and limitations in an upcoming Blog.

Learning the rules is critical to achieving the maximum investment and tax outcome, but that is useless unless proper planning takes place in advance.