Year-End Personal Finance Checklist from Morningstar

Morningstar today has an excellent article that offers tips for year-end personal finance checkup. Following is the summary. To read the full article by Sue Stevens, click here.

1. Supercharge Your Portfolio

  • Rebalance: Keep your target asset allocations.
  • Net gains and losses: Offset gains by selling losers.
  • Check year-dnd fund distributions: Buy a fund after its year-end payout, or sell a fund before its distribution.

2. Shore Up Your Retirement Savings

  • Sponsored retirement plan: Max out 2006 contribution limit of $15,000 for your 401(k), 403(b), or 457 plan. If you’re over 50, you can put away $20,000 in 2006.
  • IRA: Maximum IRA contribution for 2006 is $4,000 ($5,000 if you’re over age 50).

3. Set a Holiday Budget

  • List whom you want to give to and how much you want to spend.

4. Get Estate Documents in Place

  • Find the best qualified person to do the job for you.
  • Review your estate documents.

5. Earmark Money for the Kids’ Education

  • Set aside some money from your next few paychecks or year-end bonus to invest in your child’s future.

6. Plan Year-End Giving

  • Identify whom you want to give to.
  • Determin what assets you want to give away.

7. Do a Year-End Tax Projection

  • Gather paystubs to project 2006 income.
  • Check your 2005 1040 tax return for any carry overs.
  • Adjust your withholding rate if necessary.

8. Consider a Roth Conversion

  • Determine if you meet the criteria to convert (AGI under $100,000).
  • Consider whether a Roth IRA is suitable for you.
  • Consider a Roth conversion in 2010 if you don’t qualify now.

9. Plan Year-End Stock Option Transactions

  • Determin your taxable income for the year.
  • Project your tax if you plan to exercise incentive stock options.

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2 Responses to “Year-End Personal Finance Checklist from Morningstar”

  1. Terry Pearson |  Oct 10, 2006 at 12:10 am

    Great tips. This will definitely be a blog I read regularly.

    One comment, I have heard from some financial planners on the radio that investing in a College Savings plan for your kids is actually not as good of an idea as some would think.

    They recommended that your money is better invested in an IRA, especially if your employer matches your contributions, then when needed, you pay the penalty to pull some of the money out early to pay for your child’s education.

  2. The Sun |  Oct 10, 2006 at 12:47 am

    Hi Terry:

    True there are different opinions about whether or not 519 plans are better choices for college savings, but a general rule is that no matter which way to go, the asset should be under the parents’ names rather than under the kid’s name. For 529, the biggest concern may be the penalty of using the money elsewhere if the kid decides not to go to college. In addition, there are additional fees for 529 plans and choices are limited. However, if the kid does go to college, 529 plan will be a good vehicle to save for college. The tax bill signed into law in August made tax benefits of 529 plan permanent and that makes it more attractive.