As the end of the year draws near, it is a good time to make sure your finances are in order before bringing in 2022.
This is especially important because decisions you make this year could benefit you when you prepare your 2021 taxes. Plus, they can set you up for a financially successful new year.
Here are a few tips on ways to close out the year on firm financial footing:
Contribute to your retirement savings account (or open a new retirement account): Many types of retirement savings accounts, like a 401(k), are tax-deferred savings plans. This means the money is not taxed as income until it is used during retirement. The money you invest in your retirement account during the year is deducted from your gross income, which reduces your taxable income.
Check with the Internal Revenue Service (IRS) to see how much you can contribute annually to different types of retirement savings accounts. You can always add more money to your account before the end of the year. Or, you can start a new retirement account if you do not have one already. Make sure to do your homework since there are different rules and restrictions for each type of account. WaFd Bank offers two types of Individual Retirement Accounts (IRAs) - traditional and Roth.
- Give to a charitable organization before the end of the year: You may be able to claim gifts made to charitable organizations on your taxes to potentially reduce your tax burden. Speak with a tax advisor for more information on the tax benefits of various types of charitable donations.
- Review the details of your health savings account (HSA) or flexible spending account (FSA): HSA and FSA accounts allow you to put money aside from your paycheck (before taxes) to pay for qualifying healthcare costs. This reduces your taxable income. If you participate in one of these plans, make sure you know whether your plan requires you to use all of the money in the account by the end of the year so you don't let money go to waste.
Create your savings strategy and start saving today: No matter what time of the year it is, creating and sticking to a budget is always a good idea.
To do so, start by reviewing your finances. Make a list of your approximate monthly earnings and expenses, grouping them into different categories so you can see where your money goes and what money is left over for miscellaneous purchases. Use a budgeting app or create a budgeting worksheet to document your ongoing income and expenses.
WaFd Bank offers a free online app-based budgeting tool that comes with your WaFd Bank accounts. You can track your spending and see how making real-time adjustments can keep you on course with your budget.
- Contribute to your child's college savings plan: Although you may not see any direct impact on your taxes based on contributions to your child's college savings plan, your investment in their future will pay dividends down the road. There are several types of college savings plans to choose from that can grow your savings over time. Make sure to investigate each investment option closely. WaFd Bank offers the Coverdell Education Savings Account, allowing you to make after-tax contributions of up to $2,000 annually per child. When the funds are withdrawn, they are tax free.
Need help managing your money?
We're here to help. Visit wafdbank.com to open an account today, or call us at 1-800-324-9375 to learn more. Interested in opening a savings account? WaFd Bank's savings account requires just $25 to open ($10 if under age 18) and only $100 to earn interest and avoid a monthly service fee.
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