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Your fall financial checklist

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With school breaks, family vacations and the holidays, the end of the year can be frantic. Now’s the perfect time to tackle the financial tasks you’ll want to complete by year’s end to benefit from any potential opportunities—and avoid missing any deadlines.

Open enrollment

Your company’s annual Open Enrollment period (generally occurring in the fall) is usually the one time of the year that you have the option to enroll in benefits for the first time, make changes to your current plans or coverage amounts, or drop coverage completely without having to prove that you’ve experienced a change in status (such as marriage, divorce, birth, adoption, etc.). Since these decisions have a significant financial impact, it’s important to review your options carefully.

Select health coverage that meets all of your needs—For most of us, health insurance represents the largest component of our benefit package, so thoroughly examine the coverage and features of the plans offered, as well as the costs. Employers regularly change plan providers and premiums, so the coverage you have this year may not be the same next year. Beyond looking at your own coverage, be sure to check out what your spouse’s benefits may provide. Just because you enrolled in your employer’s plan this year doesn’t mean that’s the best course of action for next year. It might make better sense to switch to your spouse’s plan.

While medical coverage might be top of mind during Open Enrollment, don’t forget your retirement plan... 401(k) contributions are typically pre-tax deductions, and if your employer offers a matching contribution, take full advantage by contributing at least enough to get the full match.

Take into account all aspects of the available plans—not just the premiums, which might qualify for pre-tax treatment and decrease the payroll tax you pay. Compare deductibles, co-pays and out-of-pocket limits. A lower premium may seem like a big savings, but you could end up paying more if the coverage isn’t as good.

In addition to identifying the plan that is the best value for the coverage required, you should also be familiar and comfortable with the associated health care providers. If your existing medical team or other local professionals are not participating in the plan, you may need to change doctors, or have to travel beyond your comfort zone for care that is fully covered by your medical benefits.

Don’t forget your 401(k)—While medical coverage might be top of mind during Open Enrollment, don’t forget your retirement plan. Most 401(k) plans allow you to make changes throughout the year, but Open Enrollment is a great time to take a good look at your retirement benefits, especially if it’s been a while. First and foremost, make sure you’re participating in the plan. Like health care premiums, 401(k) contributions are typically pre-tax deductions, and if your employer offers a matching contribution, take full advantage by contributing at least enough to get the full match. It’s also a good time to carefully review your investments. It may be time to adjust or "rebalance" your portfolio to bring it back to your original asset mix. That could mean putting more of your future contributions toward investments that have lagged behind, or shifting some of the money in the investments with an over-allocation to those that need a boost. Not comfortable with making investment decisions? See if your plan offers an investment service or tool to help you manage your retirement plan account.

IRAs and RMDs

Contribute to an IRA to help maximize potential growth—If you’re planning to contribute to an IRA before the April tax deadline, consider doing so now. That way you can reap the benefit of an additional six months or so of potential investment growth. For 2016, the maximum you can contribute to all of your traditional and Roth IRAs cannot be more than:

  • $5,500 ($6,500 if you're age 50 or older), or
  • Your taxable compensation for the year, if your compensation is less than this dollar limit.1

Take any required minimum distributions (RMDs) from retirement accounts to avoid additional taxes. If you turned 70½ before 2016, it’s critical that you take any RMDs from your 401(k)2 and traditional IRA. If you will turn or have turned 70½ in 2016, you have until April 1, 2017, to take your first required distribution.3 All future RMDs must be taken by December 31 of the calendar year to which they apply. Failure to take a required minimum distribution can result in a 50% additional federal tax, based on the amount you should have taken.

Saving and investing

Review your progress on your financial goals to ensure that you are on track—You may have made some financial New Year’s resolutions at the beginning of the year, such as ramping up your retirement contributions or using online bill pay to meet your monthly obligations more efficiently.

Take advantage of new savings opportunities—If you succeeded in paying off a loan this year, keep your budget lean by redirecting this extra cash to your savings. And if your salary is $118,500 or more, you may already have contributed the maximum to FICA (i.e., Social Security and Medicare tax) in 2016.4 If so, put the extra money that’s now in your paycheck into increased contributions to your 401(k), an emergency fund, or to pay down debts.

Review your progress on your financial goals to ensure that you are on track—You may have made some financial New Year’s resolutions at the beginning of the year, such as ramping up your retirement contributions or using online bill pay to meet your monthly obligations more efficiently. Check your progress on these, and decide if they still work for you.

Taxes

Minimize your tax liabilities to retain more of your income—Determine whether you’re withholding too much or too little in taxes. Too little can trigger additional federal taxes and too much may tie up cash that could be invested or that is needed to or pay down debt. If you expect your income to be higher this year than next, you might start planning to take additional deductions to reduce the size of your tax bill, perhaps by making extra payments on your mortgage before year’s end so that you can deduct the interest this year.

Make major gifting contributions now to maximize the benefit—Whether you’re donating to a charitable organization or gifting assets to your relatives, especially by contributing to a college savings account, consider transferring those assets before the end of the year.

Organizing and records

Take care of health expenses and appointments—If you’ve allocated funds to a health care flexible spending account (FSA), use the money by the end of the year so you don’t risk losing it. Also, your insurance plan deductible likely resets at the beginning of the year, so make the most of your benefits by scheduling doctors’ appointments and taking care of other medical needs before the end of the year. Remember, appointments can be difficult to schedule on short notice, so make them now.

Make sure your account beneficiaries are up to date—Check the beneficiary designations on your banking, retirement and investment accounts and life insurance policies, and update to reflect any significant change that may have occurred during the year, such as a marriage, a birth, a divorce or a death.

Get your financial house in order—Organizing your papers and accounts can leave you better prepared for the upcoming tax season, and lets you evaluate whether you’re on track to reach your financial goals. Consider speaking with a tax professional if you have any questions.

At the very least, checking these items off your to-do list can help you be more organized and give you a sense of accomplishment, which is a good end to any year.

Learn more and take action

  • Visit Benefits OnLine® to enroll or make changes to your account if your employer’s 401(k) plan is with Merrill Lynch.
  • Learn more about designating a beneficiary.
  • Watch a short video on the basics of investing for retirement.
  • Read “What you need to know about turning 70 1/2” for more information about required minimum distributions (RMDs).
  • Don’t have an IRA yet? Find the right one for you at merrilledge.com.
  • Interested in knowing more about 529 and other college investing plans? Find a solution to your college planning needs at merrilledge.com.
  • Consult a financial or tax professional with questions about your specific tax situation.
 
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1Source: http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits, accessed August 19, 2016

2Note: If you are still working at 70 1/2 and contributing to a company 401(k), you are not required to take an RMD from that specific 401(k) until the year after you retire (unless you are a 5% owner).

3However, if you delay your first RMD to April 1, 2017, you will also need to take another RMD by Dec. 31, 2017.

4Source: http://www.ssa.gov/oact/cola/cbb.html, accessed August 19, 2016

Neither Merrill Lynch nor any of its affiliates or financial advisors provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

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