Year-End Business You Should Take Care of Now

Posted on: October 4th, 2010 by

Financial & Tax Planning - Rockville, MDYou might think that the beginning of October is a bit early to start worrying about taking care of year-end business.  But with these three must-dos, getting an early start doesn’t just let you cross a chore off your list, it can actually put some extra money in your pocket.

1. Make the most of your retirement accounts.
Retirement savers have a lot to keep in mind at year-end.  Although you don’t have to make current-year contributions to IRAs until next April 15, there’s a laundry list of other tasks you have to take care of before December ends:

  • Contributions to 401(k)s and other employer-sponsored retirement plans are due by Dec. 31.
  • If you’re required to take mandatory distributions from your retirement accounts, either because you’re age 70 1/2 or older or because you have an inherited IRA, then you must do so by the end of the year.
  • The opportunity to convert your traditional IRA to a Roth and take advantage of special 2010 rules that allow you to put off the tax impact until 2011 and 2012 goes away on Jan. 1.

These things are easy to forget about in the year-end rush.  There are big penalties for not taking required minimum distributions, but even more costly is the opportunity cost of not getting as much money as you can into your retirement accounts.

2. Taking tax losses.
If you’ve lost money on a stock, you can get a tax break by taking a capital loss on your tax return.  To do so, though, you must sell the stock by Dec. 31.  The reason you might want to do so early, though, is to get a jump on everyone else doing the same thing.  Another advantage is that if you want to take losses but still own the stock in the future, you have to wait 30 days after selling to buy it back.  If you sell now, you can buy back in November or December, just as latecomers are selling, hopefully pushing the price down to let you get in more cheaply.

3. Re-balance your portfolio.
If you haven’t done re-balancing in a while, you shouldn’t put it off any longer.  Whether it’s getting your stock/bond mix back to normal or adjusting your sector exposure, re-balancing makes sure you’re taking the right amount of risk.

For instance, say you have allocations to both financial stocks and real-estate investment trusts.  If you haven’t rebalanced, the value of your REITs is much higher than your financials, leaving you overly exposed if REITs reverse course and fall.  By re-balancing, you lock in some profits on your REITs while taking advantage of low prices to boost your financial exposure.  It’s not guaranteed to make you money, but over time, rebalancing has helped many people take advantage of the natural cycles within markets.

SO……. Do it today
Sure, you could wait on some of these things.  But why wait?  There is no time like the present.  By acting sooner than later, you can get a jump on your peers; and being first out of the gate may well mean more money in your pocket.



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