Year-End Money Moves

December  2013 – Published in the North Bay Biz Magazine

As 2013 comes to a close, now is the time to take stock and review your personal financial situation. This will give you the opportunity to reflect on what needs to be changed and attended to as you continue to build financial security for the future.

Take stock. So much can happen in a year—changes in employment, a move to a new location, change in marital status, birth or adoption of a child, or perhaps you’ve lost a loved one. These are all significant changes, which impact the way we plan and think about the future. Take some time to reflect on how your personal and financial situations have changed. What goals should you set to improve your financial situation?

Now is the time to discuss your short- and long-term goals with family members. Your goals could include buying a home, paying for education, reducing debt, planning for retirement or taking a family vacation. All of these are possible if you can plan for them in advance. This plan could include generating more income, relocating, finding a new job, paying off debt more quickly, investing more or making certain sacrifices.

Review your expenses for the year. Check your spending patterns and see how the year turned out—did everything go as planned? Based on your spending, can you work out a new budget for the coming year to better control expenses?

Check your credit report. Once a year, it’s a good idea to get a free credit report through the big three nationwide consumer reporting companies—Equifax, Experian and TransUnion. You can do this check anytime during the year, but if you haven’t done so already, now is a good time to request your reports. Go to AnnualCreditReport.com to get started.

Contribute to your 529 plans. For 2013, the maximum amount you can contribute to a 529 plan account without having to file a federal gift tax return is $14,000 (or $28,000 per married couple). Or you can contribute a lump sum of $70,000 (or $140,000 lump sum per married couple), which covers five years worth of contributions.

Review your beneficiary designations. Examine your workplace retirement plans, IRAs, annuities, insurance policies and any other instruments that transfer ownership or where payment is made to a designated beneficiary upon your death. Be sure the person or people named in those instruments match your wishes, and any other documents, such as your living trust or will, that name beneficiaries as well. For example, if you still have an ex-spouse named as the beneficiary of an insurance policy, that’s who will get the money when you die. This might not sit well with your current spouse if you’re remarried.

Year-end charitable contributions. One way to reduce your tax liability is to make charitable contributions. If you’re considering making charitable contributions prior to year-end, consider using appreciated stock rather than cash. Not only will you benefit from the charitable deduction, but you could also avoid paying the built-in capital gains tax on the stock.

Year-end gains and losses. Capital gains and losses can be used to offset each other. If you took profits in some of your investment positions this year, look to see if you have any positions that could be sold for a loss to offset the gain and minimize your taxes. Excess losses can be used to offset up to $3,000 in ordinary income taxes. Losses beyond that can be carried forward indefinitely to offset future gains.

Review your asset allocation. For many, the 401(k) is their biggest retirement savings vehicle. I generally suggest you review and, if needed, rebalance this account at least annually. Many plans have an auto rebalance feature, which makes the latter task even easier. Above all, review your 401(k) plan as a part of your overall portfolio.

To protect your assets and maximize your returns, you should meet with a trusted adviser and make sure the investments you hold are appropriate based on your risk tolerance, goals and timeframe.

Shred unnecessary paperwork. Identity theft is on the rise, so it’s smart to shred documents before discarding them.

Much of the paperwork you have can be purged once per year. For example, if your December investment statements summarize the year’s activity, you can shred the statements for the previous 11 months. Likewise, any bills, credit card statements and receipts that you aren’t using as supporting documentation for your taxes can go.

According to the IRS, you should keep your tax records for “the period of time during which you can amend your tax return to claim a credit or refund, or that the IRS can assess more tax.” Seven years should do the trick for most tax documents, such as returns and any supporting documentation like canceled checks, receipts or credit card statements. The one exception is records supporting capital improvements to real estate and the HUD 1 statements for real estate purchase. These should be kept until at least three years after the tax return filing for the year in which the property was sold.

Prepare for next year’s taxes. There are multiple ways you can save money on your taxes at the end of the year. Some tips include making retirement plan contributions, donating to charities, taking business deductions, selling investments to capture losses, prepaying deductible expenses such as child care, making certain home improvements and more.

Hire a financial adviser if you need one. We meet many folks who feel they can do their own investing and financial planning. Many of them are perfectly capable. The question is: Will they actually take the time to do the planning and ongoing reviews and updates that are so critical?

The end of a calendar year is a time when we often reflect on where we are in life and what’s happened over the past year. Take some time in this last month of 2013 to get your financial house in order and to position yourself to hit the ground running in 2014.

As you can see, by taking a few simple steps before year-end, you can enter 2014 organized and on a firm financial footing.