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Smart and Small Year-End Financial Moves

December 2012

Barbara O’Neill, Ph.D., CFP®
Extension Specialist in Financial Resource Management
Rutgers Cooperative Extension

Some financial practices, such as requesting a free credit report, can be done at any time while others have annual time deadlines. It’s almost time to ring in a new year but you still have a few weeks left in 2012 to take action on your personal finances. Smart year-end moves can cut your taxes, increase your future financial security, and help you see where you stand in dollars and cents.

Consider the following seven small steps:

  • Increase Your Retirement Savings- Ask your employer to raise your 2013 retirement savings plan contribution. Even a small increase of 1% of pay can result in thousands of additional dollars at retirement. Aim to save at least the maximum amount that your employer will match and even more, if possible, up to the maximum IRS limit. Many employers will match at least half of workers’ savings contributions up to 6% of pay. This is “free money” that should not be passed up.
  • Calculate Your Net Worth - See where you stand financially at year’s end with a net worth statement (also known as a balance sheet). Companies do this calculation every year to assess their current financial condition and you should too. Subtract the amount that you owe (debts) from the value of everything you own (assets). The difference is your net worth. Ideally, your net worth will rise over time as debts are repaid, additional savings deposits are made, and the value of accumulated investments increases with dividends and capital gains.
  • Share the Wealth - Make year-end 2012 charitable contributions, including appreciated assets (e.g., stock and personal property). Donations don’t just have to be made with cash. In addition to helping a worthy cause or charity, you may receive tax benefits if you can itemize deductions. The value of the tax deduction depends on your marginal tax bracket. Multiply the amount of the donation by your marginal tax bracket to determine the tax savings. For example, with a $1,000 charitable contribution in the 25% tax bracket, you’d save $250 in taxes (1,000 x .25) and have a $750 out-of-pocket cost.
  • Review and Rebalance - Determine the percentage of your portfolio in stocks, bonds, and cash. If asset allocation weightings have shifted by a certain amount (e.g., 5%), rebalance by buying or selling securities or directing new deposits into under-weighted asset classes. Keep in mind, however, that the sale of investments in taxable accounts may trigger capital gains and, thus, additional income taxes.
  • Benchmark Your Progress - Compare the performance of your investments in 2012 with that of market indexes (e.g., the Standard & Poor’s 500). Your investment provider (e.g., a mutual fund company) will soon be providing year-end performance data and the news media will report the performance of benchmark indices. Compare these two figures to see how well your investments did.
  • Check Your Tax Withholding - If you received a $1,000+ tax refund in 2012, consider revising your W-4 form to increase your take-home pay. Use the extra income to save or reduce debt. Contact your employer now to complete the paperwork so that it takes effect in January 2013.
  • Organize Your Tax Records - If you’ve been throwing receipts for tax-deductible expenses into an envelope all year, now is a good time to gather them together and add them up. You’ll need a tally for each category of deductions (e.g., business expenses and charitable contributions) to list on a paper tax form, plug into a tax software program, or hand over to a professional tax preparer.