3 Financial Moves to Make Before the End of the Year

by Kevin on October 27, 2011

The end of the year is fast approaching. It’s hard to believe that only 10 months ago my wife and I were in the midst of panic diligently scrambling to pack everything we owned and move to Knoxville. The time between making the decision to move together and pulling into the parking lot of our new place was about 3 weeks. Looking back it seems like this year has been so long, but in reality it really has flown by. It’s hard to believe we’ve lived here this long while at the same time hard to believe we’ve only lived here 10 months. It feels like forever… in a good way.

Three Critical Tasks to Wrap Up the Year

Maybe your year has been the same. Maybe you’ve had changes to your personal situation like we did. Maybe you added a child to your family. Maybe you needed to get a larger vehicle. Maybe you started a business. It’s been a full year, it always is. But are you prepared for the end of the year from a financial perspective? Here are a few ways you can better prepare for the end of the year or even — gasp — get started on planning for next year.

Max Out Retirement Accounts

The time to find out ¬†you need to max out your retirement accounts isn’t in the middle of December. By that time you are covered up with holiday plans and opening and funding a new account is impossible. Even if you already have an account in place, you probably don’t have a lot of extra cash hanging around (because of the holiday shopping season) to drop into your retirement accounts.

A better time to discover you still have room to contribute is when you have some time to react and do something about it. Like right now.

Here is a short list of how much you can contribute to various retirement accounts:

  • 401k: $16,500
  • Roth 401k: $16,500
  • Traditional IRA: $5,000 (+$1,000 if over age 50)
  • Roth IRA: $5,000 (+$1,000 if over age 50)

Harvest Investment Losses

If you have extra money to invest after maxing out your retirement accounts your only option is to use a taxable investment account. Paying taxes is unfortunate, but you can lower the overall impact by harvesting your tax losses. Instead of sitting on losses forever, you can sell your losing positions today and deduct up to $3,000 of those losses from your income. If you are in the 25% tax bracket that deduction is worth $750.

But what if you really like the investment (such as a specific company) and would rather remain invested in it? You can sell your losses today and buy it back after a 30 day waiting period. So 31 days after you sell your investment to receive the tax benefit, you can buy it back. Of course you are risking that the investment goes up in price during the 30 day period, so you need to take that into consideration.

Set Goals for Next Year

Maybe you’ve been on top of everything this year — congrats — but haven’t put much thought into next year. Now is the best time to be planning out big purchases, anticipating problems (does the car need a new axle?), and planning on your finances for the year. You can begin to make changes like automating your finances or figuring out how to max out your retirement account next year now¬†rather than in the middle of next year. Great planning today leaves you only the problem of executing, which leads to a higher chance of success.

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