Top Ten Financial To Do’s Before Year’s End

1. Review your portfolio and rebalance, if necessary
Major market swings like the ones we’ve seen in the market recently can cause your investment allocations to shift. By rebalancing, you can restore your target allocation, manage investment risk, and keep your portfolio in good health. For example, say the asset allocation mix for a 30 year-old is 70% stock and 30% bond. But given the great run in stocks this year, that mix has moved to 80%/20%. Well, she should sell 10% of her stocks and use the proceeds to buy bonds. In a way, you’re always selling high and buying low.

2. Don’t buy mutual funds till the next year
Did you know there is a “wrong” time to buy mutual funds? Yes, towards the end of the year, especially December. Why? Because by the end of the year, mutual fund companies are required to pass on capital gains to their investors. By buying a fund right before it distributes its gains, you’ll owe taxes on a fund you’ve only owned for a short period of time and be subject to the same tax as those investors who’ve held the fund all year long. Wait until a fund has distributed its gains before investing.

3. Use your losses to offset gains
If you decide to sell losing assets before year-end, you can use those capital losses to offset taxable capital gains plus $3,000 in ordinary income. Plus you can carry losses over for use in the next year. But remember to wait 31 days if you’re buying back the security to avoid the loss being disallowed by the IRS.

4. Max out on your retirement plan contributions
This is one of the best ways to save for retirement. If you haven’t reached this year’s contribution limit ($16,500 in 2009) for your company’s 401k retirement plan, increase your contributions for the rest of the year and plan to maintain that contribution in 2010. Ditto on your IRA, the limit for 2009 is $5,000.

5. Got kids? Contribute to a college saving plan
Saving for kid’s or grandkid’s college has potential tax benefits as well. While there is no limit to the amount you can “contribute”, there are limits on how much can be “tax –free”. Click here for more information on 529 plans.

6. Get your insurance claims in
This is pretty self-evident. One of those boring administrative things that need to get done before year’s end.

7. Spend the rest of your flexible spending account
If you’ve covered the basics but still have some remaining funds, check your plan’s list of eligible expenses for last-minute ideas. Make sure you use the money that’s left in your account by the end of the year, or you’ll lose it.

8. Check your credit report
The Fair Credit Reporting Act (FCRA) requires each of the nationwide consumer reporting companies - Equifax, Experian, and TransUnion - to provide you with a free copy of your credit report, at your request, once every 12 months. For more information go to the Federal Trade Commission.

9. Prepay deductible expenses for an extra tax benefit
See if you can accelerate payments you were planning to make in the next year. That way, you can increase your deductible expenses and shave a bit more off your taxes by April. For example, prepay your mortgage bill for the month of January by December instead. You will make 13 payments this year thereby increasing your mortgage interest deduction. Take note that this is a good move if you anticipate being in the same or lower tax bracket next year. You can prepay your property taxes to increase your deductions if your state allows it.

10. Make your charitable contributions and donations
If you’re feeling generous or just want to give back, make sure it’s done before the end of the year. Keep the receipts, you’ll need them for next year’s tax return.

Happy Holidays!

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