1. Max out your retirement contributions
In 2018, you can sock away $18,000 in your 401(k) or other employer-sponsored retirement plan, plus an additional $6,000 in catch-up contributions if you're age 50 or older.
If you don't have an employer-sponsored plan, you may still be able to tuck away $5,500 ($6,500 for those age 50 and up) in a traditional IRA--an option that's also available to a non-working spouse.
If you're freelancing or self-employed, your limits are even higher: Up to $54,000 or 25% of your qualifying income, whichever is less, if you have a SEP IRA. If you don't, there's still time to set one up to take advantage of the tax benefits for 2018.
Now is also a good time to look over the investments in your retirement fund to make sure they're performing as expected and well-aligned with your financial goals. You may need to rebalance your investment portfolio to make sure you stay on track.
2. Consider converting some cash to a Roth
From a retirement income perspective, it makes sense to have a good mix of traditional and Roth IRAs, so you can manage withdrawals in a way that keeps you in the lowest possible tax bracket. Unlike withdrawals from traditional IRAs, which are taxed as ordinary income, Roth IRAs offer tax-free withdrawals in retirement.
Year-end is the perfect time to go over your spending and savings patterns to see if any changes need to be made.
You'll need to crunch the numbers to see if a Roth conversion, either within your 401(k) or from a traditional IRA, makes sense this year. Keep in mind, money you convert to a Roth IRA will be treated as a normal distribution, so you'll need funds to cover income tax on that amount. If you're in a lower tax bracket this year, perhaps due to a gap in employment or other life event, this may be the right time to make a conversion.
3. Offset capital gains with capital losses
Tax-loss harvesting is a complex name for a simple idea, which is simply selling off stocks and funds that have lost value to offset gains from the sale of winning investments. If you hold investments outside your tax-exempt or tax-deferred retirement accounts, you may want to look at your sales this year to see if you can lower your tax burden by selling off some poor performers.
Even if you haven't realized any capital gains in 2018, you can still use realized capital losses to reduce your ordinary income by up to $3,000.
Talk with your financial advisor or accountant to help you narrow down the best investments to unload to take advantage of tax-loss harvesting if you have capital gains.
4. Plan ahead for education expenses
With a 529 plan, each parent and grandparent can contribute $14,000 per year tax-free to be used for educational expenses. In addition to federal tax savings, 34 states offer state income tax deductions for 529 contributions. If you've had a windfall this year, you can also take advantage of up to five years of gift tax exclusions to set aside up to $70,000 in a 529 plan in a single year.
With average private college costs at over $60,000 per year, it's never too soon to start saving for a child's college degree.
5. Make sure you're adequately insured
Have you grown your family this year? Bought a house? Launched a new business? The insurance coverage you had at the beginning of the year may not be adequate for your needs in 2019.
Check to see if your life insurance policy adequately protects your spouse and children, and that you have sufficient liability coverage on your home and car; depending on your assets, you may need an umbrella liability policy. You may also need extra coverage if you use your home or car for business purposes.
And if you've declined any additional coverage through your employer such as disability insurance, for example, make sure those decisions still make sense for you and your family in the upcoming year. If you've struck out on your own, you may need a disability policy to protect your family in case you're unable to work.