Six Money Moves To Make Before Year End
By David Dierking
The end of the year is always a good time for tying up loose ends. Whether it’s preparing for a new and healthier you in the new year or taking care of some of this year’s resolution, now is usually the best time to close the books on the current year and get ready to open a new chapter in January. With your money, it’s no different.
When it comes to the financial world, some of the issues worth addressing have a hard deadline of December 31st. Miss this deadline and you’ll have to wait until next year to take advantage. We have talked about year-end tax strategies before, now let’s take a look at what other moves you should consider making before Year 2011 arrives to save you money.
Make Contributions to Charity
Donations made to approved charities are eligible for a tax deduction as long as you itemize deductions on your return. Make sure that all contributions are made by December 31st and you save receipts just in case later you will need them. In many cases, appreciated stock can be donated to charities too.
Empty out Your Flexible Spending Plan Accounts
If you contribute to your company’s medical or dependent care flexible spending plan, you’ll need to zero out the account by year end or you’ll fall victim to the “use it or lose it” provision. Some employers offer more flexibility and allow you to use the account until the first quarter of the new year to empty out your account but in either case you’ll need to spend what’s in your account or you’ll forfeit it.
Lock in Losses in Your Portfolio
Odds are you have one or two investments in your portfolio that haven’t quite turned out as planned. Whenever you’re sitting on a financial lemon, make lemonade by turning that loser into a tax break. If you sell your money losing securities this year, you’ll be able to use that loss to offset capital gains or income on your tax return.
Complete a Roth Conversion to Spread out the Tax Hit
Thanks to the Bush tax cuts, Roth IRAs became available to investors without regard to their income. Even better, if you convert from a traditional to a Roth IRA you can spread the tax liability over the next two years instead of having to settle the full bill in the year of the conversion.
Rebalance Your Portfolio
This doesn’t really have a hard deadline but the beginning of a new year is always a good time to check the relative balance of your investment portfolio and make any necessary changes. Your current asset allocation may have shifted from your original target and now would be a great opportunity to reset your portfolio back to where you’d like it.
Contribute to 529 Plans
Many 529 college savings plans have investment limits that only the wealthiest of the wealthy really need to worry about hitting but many plans also offer state tax deductions for contributions so long as you get them in by the end of the year. You can check with your state’s plan specifically for details but even if a tax deduction isn’t available to you shoring up your child’s education fund with a few extra dollars is never a bad idea.
Photo credit: adesigna
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