7 end-of-the 12 months money-saving concepts: choosing tax brackets, IRA withdrawals, mortgage refinancing, extra – That’s Wealthy!

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CLEVELAND, Ohio – Take a short break from buying holiday gifts for family and friends to do a few things to put a little extra cash in your pocket now, or that will pay off in the long run.

Here are seven money-saving ideas as the year winds down.

1. Make use of these new tax brackets

This time of the year provides an opportunity for some people to essentially pick the top tax bracket that will be applied to their next return, translating to tax savings.

Let’s say you have two retirement accounts, a traditional IRA in which your withdrawals are taxable, and a ROTH IRA without taxes on your withdrawals. Knowing the new cutoffs for the tax brackets can be valuable in choosing which account to tap in December – and for how much – or whether to hold off until early January for an optional withdrawal.

Same goes for the timing on business expenses and collections.

The difference could be as much as 10 percentage points in federal tax rates. Here’s why.

As an example, an individual in the 22% tax bracket doesn’t pay 22% in taxes for all their income. This person pays 22% on just the portion of their income after deductions from $40,126 to $85,525 (the range is higher for couples). The rates are 12% and 10% on the portions of their income that fall in the lower brackets.

The right timing on accumulating income or deductions can help you avoid a higher bracket altogether.

Here are the 2020 tax brackets that will be on the IRS forms due in April 2021. Remember, these tax rates are for taxable incomes after deductions. Most people will first subtract from their income the standard deduction, which for single filers on the upcoming forms will be $12,400 (up $200). For couples, it will be $24,800 (up $400).

* 10% – The portion of income up to $9,875 (single), or $19,750 (married filing jointly).

* 12% – The portion of income from $9,876 to $40,125 (single); $19,751 to $80,250 (joint return).

* 22% – $40,126 to $85,525 (single); $80,251 to $171,050 (joint return).

* 24% – $85,526 to $163,300 (single); $171,051 to $326,600 (joint).

* 32% – $163,301 to $207,350 (single); $326,601 to $414,700 (join return).

* 35% – $207,351 to $518,400 (single); $414,701 to $622,050 (joint return).

* 37% – $518,401 and over (single); $622,051 and over (joint return).

2. Pay your entire 2021 property tax bill by Dec. 31

Changes enacted in 2017 to the federal tax code mean that far fewer people than before now are able to itemize deductions to achieve additional tax savings.

This is because the standard deduction was sharply increased, now reaching $12,400 for singles and $24,800 for couples. It takes a lot of deductions to top that. Only about 14% did so last year, down from what would have been about 31% without the law change, according to an analysis by the Tax Foundation.

But for people just below the cutoff, there is a trick that can be applied to still reap the benefits of itemizing on their next return. Pay your entire 2021 property tax bill by the end of this year.

Counties are on different timetables for when they send out the bills. In Cuyahoga County, the bills are scheduled for mailing just ahead of Christmas (and also will available online if your mail is slow). The due dates each year are in January and, optionally for the second half, July. But if you like, you can pay your entire 2021 tax bill by the end of this year, making the payment a potential deduction on your next IRS return.

The key for federal taxes purposes is when you pay.

One caveat, per the IRS, “Your deduction of state and local income, sales, and property taxes is limited to a combined total deduction of $10,000 ($5,000 if married filing separately).“ This is different than before the tax law changes of 2017.

3. Pick and choose what to pay on your student loans

The interest clock quit ticking on government-owned student loans back on March 13, and so did required payments, thanks to the CARES Act. These temporary changes have now been extended through at least Jan. 31, Secretary of Education Betsy DeVos announced earlier this month. More extensions are possible.

But these breaks don’t mean you can’t continue to pay. If you can afford it, making payments through this period will shorten the life of your loans.

This is the case for two reasons: (1) you will be continuing to make payments instead of taking several months off, and (2) 100% of the money you pay now will be used to pay down the balance since there are no current interest charges.

Surgically making payments now can provide even more savings.

Here’s what you should do, assuming you, like many people, have a series of loans with different interest rates taken out at different times during your college days.

Check with your loan servicer to identify the loans with the highest interest rates. Then apply whatever payments you are making now to only the loan or loans with the highest interest rates. This will help get those higher-interest loans off the books earlier, leaving you with lower overall interest rates.

Read more: CARES Act makes this ideal time for a student-loan payment checkup. (tinyurl.com/studentloandcheckup)

4. Shop for a lower insurance premium

It’s always a good idea to check from time-to-time whether you’re still getting as good a deal on your home and car insurance that you thought you had when you first signed up.

But this year, it’s especially a good time to check on auto insurance. No. 1, you may be entitled to a new, lower rate if you’re driving less, maybe the result of working at home during the pandemic. That savings can be realized without changing insurers.

And No. 2, though a lot of insurance companies offered price breaks because of reduced driving and fewer accidents on the roadways this year, they didn’t do so to the same extent. You may now being be paying more than necessary for auto insurance.

“Other than consumers in California (under state rules there), insurers have largely walked away from providing relief, even though they continue to get the benefit of reduced driving,” Douglas Heller, who tracks the industry for the non-profit Consumer Federation of America, told us for a story on the topic in October.

“For the most part, drivers in Ohio and around the country are paying premiums based on rate plans developed in 2019 or before when, frankly, the world was different and the roads were more crowded. We’re paying premiums as though the pandemic never happened.”

Read more: How to be sure you’re getting a fair deal on auto insurance during COVID-19 with traffic, accidents down. (tinyurl.com/insdeals)

5. Decide whether to pay down your mortgage – or not

Maybe you were fortunate enough to have little or no interruption to your income this year during the pandemic, and you’ve built up a some extra cash on hand because you’re not spending money on commutes or you didn’t take that big vacation.

If so, it’s worth at least considering whether to use some of that money to pay down your mortgage, or another loan. Doing so could trim months or years off your debt.

If you have $100,000 balance on a 4% mortgage for the next 10 years, making a one-time payment of $10,000 would knock 14 months off the payment schedule. In other words, even with regular payments going forward, your mortgage would be paid off in another 8 years and 10 months, instead of 10 years.

But in doing so, consider this: with a low loan rate, would that extra $10,000 be put to better use as an investment? If the stock market keeps steaming along, this could be a better option, considering that market gains could be higher than what is being paid out for loan interest.

It’s really a peace of mind question. “I’ve never met a client who has ever slept worse at night being debt free,” Jesse Hurst, a certified financial planner at Impel Wealth Management in Cuyahoga Falls, told us earlier this year when we posed the question of whether to invest or pay down a mortgage.

Others will argue the money is better placed in the market.

Read more: Does it make sense to pay off your mortgage early? Here’s what to consider. (tinyurl.com/payoffearly)

6. Test to see if a mortgage refinance is right

Mortgage rates are at historic lows. If you haven’t run the math lately to determine if the time is right for a refinance – or checked with a lender for help on this – this is a great time to do so.

The average rates nationally the second week of December were just 2.71% for 30-year loans and 2.26% for 15-year loans – both lower than at any point in a half-century by Freddie Mac.

This means that $150,000 can be borrowed for $609 a month over 30 years, or $983 a month over 15 years – a big savings over where rates were not too long ago.

For example, at 4%, the same $150,000 loan would cost $716 monthly for a 30-year loan and $1,110 a month for a 15-year loan.

Or maybe better yet, if you’re already used to the higher payments, refinance and continue the same payment to pay off your house earlier. Don’t get tricked into extending the life of your mortgage with a new mortgage without considering the ramifications.

Read more: With mortgage rates at historic lows, should you join the rush to refinance? (tinyurl.com/refidecision)

7. Shop for better deals on college online classes

If you’re a college student but not going back to campus this winter, consider whether you can get the same credit for classes – at a lower cost – by enrolling at a community college or perhaps another college for transfer credit.

There are more online options than ever before, and easy ways to find out what credits will transfer. Community college classes generally cost less than half as much as credits at Ohio’s four-year public universities, and the savings can be even greater over private colleges.

Yet in many cases, the transfer credits from the less expensive schools will count the same toward your degree. Two websites that can help students determine what classes will qualify for transfer credit are transfercredit.ohio.gov (run by the state of Ohio) and transferology.com, which provides details for schools in many states.

Read more: Taking college classes online this fall? Here’s how students can save a lot of money. (tinyurl.com/tranthecredit)

Rich Exner, data analysis editor, writes cleveland.com’s and The Plain Dealer’s personal finance column – That’s Rich! Follow on Twitter @RichExner.

Email questions and suggestions to rexner@cleveland.com. Include your hometown and first name for publication. And to help me sort through the clutter of my email box, try to remember including “That’s Rich!” in the subject of the email.

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