The last couple months of the year are a good time to think about money – and make various tax, investment and other personal-financial moves. Here are five questions to ask yourself as 2018 starts to wind down.
1. Should you do year-end tax planning?
The Internal Revenue Service for months has been urging Americans to assess their tax situation, and for good reason. The tax-reform legislation that took effect in 2018 will change the numbers for a lot of people. For example, the proportion of households itemizing deductions is expected to drop from around 30 percent last year to 10 percent this year.
Workers have enjoyed the benefit of lower payroll withholding, boosting their take-home pay, but it still could mean a tax bill when it comes time to file returns early next year. The IRS provides a withholding calculator at irs.gov. There's still time to make modest paycheck-withholding changes for the rest of 2018, and the calculator might pinpoint the need for an estimated payment.
With itemized deductions less compelling (because the standard deduction has been increased), a lot of people won't benefit from a tax standpoint from making charitable donations, paying property taxes, incurring mortgage interest and so on. But some might find a "bunching" strategy helpful, essentially doubling up on certain elective costs such as charitable donations in one year and skipping or minimizing them the next. That could get you over the itemizing hump at least every other year.
2. Should you look for a holiday-season job?
If you have any interest in picking up part-time work, this is the year to do it. With the nation's jobless rate in September touching a 49-year low of 3.7 percent, many companies are aggressively seeking workers as the holiday shopping season approaches. Aside from the pay, part-time workers at some businesses can look forward to special employee discounts and other perks.
The National Retail Federation expects a shopping-sales uptick of at least 4.3 percent this holiday season, and the "help-wanted" signs aren't just hanging in stores.
"With the rise of online shopping, transport and warehousing companies are also looking for seasonal workers," said Andrew Challenger, a vice president at global-outplacement firm Challenger, Gray & Christmas.
He expects the season "will be a good time for workers who have had trouble finding employment or those who are discouraged or marginally attached to the labor force."
Target and UPS are among the companies that have announced plans to hire at least 100,000 seasonal workers nationally. Macy's, Kohl's, FedEx, JCPenney, Gap and others have announced hiring plans running into the tens of thousands.
3. Should you tweak your company benefits?
If you work full-time, your employer probably provides a range of benefits. With the upcoming open-enrollment season, now is a good time to re-evaluate the options. Many businesses are healthier than they have been in years, yet they're also finding it hard to attract and retain staff. That could mean enhanced, or at least different, benefits.
In terms of medical costs, one key thing to do is evaluate how you spent health-care dollars over the past year. Maybe you are paying for services you don't need and don't visit the doctor as often as you think. Regarding 401(k)-retirement accounts, if available, try to save a bit more than last year. If your company offers matching funds, you should at least contribute enough to trigger this free money.
Keep an eye on possible new benefits, from wellness programs to pet insurance. Pay special attention to Health Savings Accounts if your company offers them. These accounts, linked to high-deductible health plans, provide tax incentives to save money to meet health outlays, and balances can be rolled over into retirement.
"HSAs have the potential to be a very powerful retirement-savings vehicle," said investment-firm Columbia Threadneedle in a commentary. "Many retirees face increased medical expenses during retirement, so the need for additional assets to pay these growing expenses becomes even more important."
4. Should you deal with debt?
Nine years into an economic recovery, many Americans are still struggling to make ends meet. That doesn't bode well for a holiday-shopping season when there might be more than the usual pressure to keep up with the Joneses. Besides, credit-card interest rates have been rising, which will make it more expensive to carry balances. The average card rate, 17.4 percent, is up from 16.7 percent a year ago, reports Bankrate.com.
If debt is a problem, make extra efforts to bring in more income this holiday season.
"Get a second job, drive for Uber and do what you have to do in order to pay off credit card debt for good," said Greg McBride, Bankrate's chief financial analyst. "The hard work and sacrifice will also act as a deterrent to running up debt again in the future.”
Among other tips, McBride suggests taking advantage of low-interest promotional periods when applying for a new card and using the time to accelerate debt payments. Also, he suggests paying for as many of your holiday gifts as you can with cash — and formulating a plan to repay debt.
One option would be first to pay down balances on cards with the highest interest rates. As an alternative, pay off cards with the smallest balances first, as that could provide a momentum boost that you're making progress.
5. Should you review your investment costs?
It's always smart to see if you are overpaying for mutual funds and the like. The exercise is a bit more compelling now that Fidelity Investments has launched two mutual funds with no shareholder-borne expenses – and no investment minimums, either. These could be great deals for a lot of people, especially those without large nest eggs. Since their debut in August, the two funds have attracted around $1.5 billion combined.
Conversely, there are reasons not to jump into the Fidelity Zero Total Market Index Fund and Fidelity Zero International Index funds. Both are stock-only funds that don't hold any bonds or cash. This means they're fairly aggressive and could get clobbered if the market retreats.
Also, the funds aren't necessarily all that less costly than those offered by rival firms such as Vanguard and Charles Schwab — and even some of Fidelity's other funds. Costs gradually have been declining throughout the fund industry. For example, the Schwab 1000 Index Fund charges 0.05 percent, or just 50 cents annually for each $1,000 invested. That's not fee-free, as with the Fidelity funds, but it's close.
The point is that expenses do matter – and fees are one thing investors can control by gravitating to cheaper alternatives. Costs have been dropping, as exemplified by the new Fidelity funds, so there's no reason not to seek out savings.
Reach Wiles at firstname.lastname@example.org or 602-444-8616.