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Kathryn Clinton
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HomeHolidays3 steps for your end-of-year financial checkup
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3 steps for your end-of-year financial checkup

Mar 16, 2019 - 16:52
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Amidst a frenzy of holiday parties and family gatherings, it can be easy to lose sight of your financial goals. But the end of the year is an ideal time to reflect on your financial plan and review your savings and investing approach. Before you say goodbye to 2018, take these steps to maximize your savings and help position your portfolio favorably for the coming year:

1) Max out retirement savings (if you can): The end of year is a good time to evaluate your overall savings and determine if you can bump up what you’re putting away for retirement. For 2018, the maximum 401(k) contribution is $18,500. To help build your savings, it’s a good idea to take full advantage of your employee retirement plan, at least to the point of any employer match.

You can also use lump sums, like an annual bonus, to give your savings a boost. Also, if you’re age 50 or over, you are allowed to add another $6,000 in catch-up contributions, for a total of $24,500 a year in your 401(k).

2) Rebalance your portfolio: According to Schwab’s Modern Wealth Index, only 46 percent of investors have rebalanced their portfolio in the last year. With the increased turbulence in the stock market recently, it’s possible your investment portfolios have strayed from their original target asset allocation.

Rebalancing simply means selling positions that have become overweight in relation to your target allocation and moving the proceeds to positions that have become underweight. The end of the year is a good time to take a look at your portfolio allocation and make sure it’s aligned to your goals and risk tolerance. This can be especially important for people nearing or in retirement, who might not be able to withstand sudden volatility.

3) Take advantage of lesser-known savings strategies: It’s open enrollment season, so if your employer offers a Health Savings Account (HSA) — and you qualify to contribute to one — consider opening one. HSAs are tax-advantaged savings and investment accounts available to people with high-deductible health plans. You can set aside money in an HSA, free of federal taxes, to pay for qualified medical expenses like doctor visits and prescription medications.

In addition, HSAs can serve as a stealth retirement savings account similar to a 401(k) or an IRA. If you’re able to contribute to an HSA and leave it alone, it can be used to cover healthcare expenses in retirement without tapping into other savings.

If you already have an HSA, try to contribute the annual maximum before the end of the year. For 2018, those in high-deductible health-insurance plans can sock away as much as $3,450 before taxes. For families, the figure is $6,900, and those age 55 and older can contribute an additional $1,000.

It’s easy to deprioritize your investments amidst the chaos of the holidays, but taking the time to evaluate your success and consider unexplored opportunities can put you on a better path for the coming years. To stay on the right track and make sound financial decisions over time, it’s also important to get a written financial plan in place. A financial plan goes beyond saving and investing to look holistically at all the interrelated parts of your financial life. It’s like a roadmap — it forces you to develop a realistic and informed perspective on where you are, where you want to go, and how to make the best use of your resources to get there.

For help creating or updating a financial plan, visit a Charles Schwab branch.

Some content provided here has been compiled from previously published articles authored by various parties at Schwab. This information is not intended to be a substitute for individualized investment advice. Investing involves risk including loss of principal. Diversification, asset allocation and rebalancing strategies do not ensure a profit and do not protect against losses in declining markets. This article is sponsored by Charles Schwab & Co., Inc., Member SIPC. (1218-8X21)

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