Last Chance for Smart Money Moves
By Suria
Now is the time to avoid the most common and costly financial planning mistakes: waiting too long to make smart moves before year-end.
Here is a checklist of things you should be thinking about right now while there’s time to change or fix them:
- Review your IRA, 401(k), SEP or other retirement plans to make sure you’ve maximized contributions. There is still time before year-end to increase your 401(k) contributions and leverage your employer’s contribution.
- Insurance review: when was the last time you took a look at your insurance situation? If there have been any changes in your living situation, you may want to change your homeowners or auto insurance. If you’ve been with the same company for many years, it may be time to get a competitive bid.
- Estate plan review: Have there been significant changes in your family? i.e. the birth of a child, marriage, divorce or separation of anyone named in the will? Any significant change in income or wealth of either the testator or a beneficiary, any major change in the needs, circumstances or objectives of the testator or the beneficiaries may necessitate a change of beneficiaries in your will, qualified retirement plans, or insurance policies.
- Keep accurate records and tell your executor where they are kept so that your executor has access to all pertinent documents. Make a list of the names and phone numbers of advisors your family can count on and attach it to your documents. Whether you use a will, a family trust or another instrument to define your wishes, be sure that you discuss your plans with your family, in advance of the need.
- Planning to make a charitable donation or gift to friends or family? You’ll need time to select specific recipients and to decide whether to give cash or appreciated assets like stocks.
- If you have a flex spending account at work, you need to use it or lose it by year-end. If you put in $2,000, for example, you don’t want to have $1,000 sitting there at year-end. Using up the remaining funds in a flex spending account can be easy if you need new glasses, but if you are planning for a complex medical procedure, now may be the time to schedule it before 2014.
- A portfolio review of your investments should be done now as well to take advantage of any potential tax loss harvesting so you can hopefully reduce your income tax liability.
- Year-end means Required Minimum Distribution (RMD) deadlines. Make sure you timely take your RMD from your qualified plan if you are at least 70 ½ in 2013, or have an inherited IRA.
- Assess whether you need to rebalance investments The S&P 500 Average is up about 17% year-to-date. That means the equity portion of your portfolio could be bigger than you realize, which could hurt when the market reverses.
If your risk tolerance is 60% equities, and you're up at 70%, you're going to be kicking yourself if the market turns and you didn't take rebalance your portfolio.
- Shift money from your top-performing assets into those that haven't done as well, but be wary of taxes. Tax-qualified accounts such as 401(k) s don't pose a problem, but in a taxable account, one tax-smart way to rebalance is to use new contributions to increase underweighted assets.
- Meet with your financial planner or accountant soon while there is time to review your personal situation and take advantage of opportunities to leverage your finances and reduce your taxes. Don’t wait until the end of the year when you may lose options to make important adjustments in your plans!
