With less than 45 days left in 2009, here are ten strategies you may want to consider before the end of the year:
1. Have you fully funded your 401(k)?
If your finances allow you to do so, why not consider maxing out your 401(k) or other retirement plan for the remaining pay periods? Granted you haven’t already maxed it out. Contributions made to traditional IRAs and 401(k)s are typically made with pre-tax dollars which potentially could reduce your tax bill.
Editor’s note: Take a moment today to review your 2009 contributions. Have you maxed out? Will you get there? The maximum you can contribute to a 401(k) in 2009 is $16,500. See more 2009 contributions limits.
2. What about Making a Traditional IRA or Roth IRA contribution?
If you haven’t contributed to an IRA or Roth IRA in 2009, time is running out. Once April 15, 2010 comes and goes, you are out of luck! You are allowed up to $5,000 toward an IRA, Roth, or combination of both (granted total contribution doesn’t exceed $5,000). If you are over age 50 you can contribute an extra $1,000 for 2009 as a catch-up contribution.
Please note if your modified adjusted gross income (MAGI) is above $150,000, you may not be allowed to make a full or partial Roth IRA contribution, depending on your tax filing status.
3. How about harvesting some losses?
With the Crash of 2008, you may still have some losers in your taxable portfolio. You may want to sell some of these losers to offset some of your winners. This can counterbalance your capital gains. Also take advantage of tax breaks. If you are in a low tax bracket (10% or 15% federal income) for 2009, you won’t have to pay any capital gains tax. This extends to 2010 as well.
Keep in mind that you shouldn’t just sell something to generate a loss. You also don’t want to creep into a higher tax bracket. Also pay attention to the 30 day wash rule. If you sell a certain security you cannot take a loss if you repurchase the same security within 30 days. Click here for more about wash sales.
4. Are you considering buying your first home or upgrading your current home?
Are you in the market for a new home? The up-to-$8,000 first-time homebuyer (haven’t owned a home in past three years) credit has been extended until the end of April 2010. There is also now the up-to-$6,500 credit for buyers looking to upgrade their current homes (must have been in current residence for at least five years). Keep in mind, the phase-out limits on that credit have increased to $125,000 for single filers and $225,000 for joint filers. The only caveats are:
- The home has to have a price tag of $800,000 or less
- The home must be your primary residence
5. How about some energy credits?
If you make your principal residence more energy-efficient or purchase solar hot water heaters, geothermal heat pumps, wind turbines or other qualifying alternative energy equipment to heat or cool your home, you can qualify for a tax credit for up to 30% of the cost of the improvements. There is a maximum tax credit limit to $1,500 for improvements put in service in 2009.
6. Got kids in college?
The Hope Credit has now become known as the “American Opportunity Tax Credit”. This allows a credit of up to $2,500 toward qualifying college expenses. Keep in mind the credit gets phased out as single filers reach $80,000 Modified Adjusted Gross Income (MAGI) and $160,000 MAGI for joint filers. You also can take advantage of a Coverdell Educational IRA or 529 plans before the year ends.
7. Have you considered prepaying some deductible expenses now?
If you are confident you should be in the same tax bracket or lower in 2010, consider making an extra payment or two on your home loan in 2009. This will boost your mortgage interest deduction. Also consider prepaying your property taxes to gain additional tax write-offs. These strategies assume your financial situation allows you to do so.
8. Have you spent all that FSA money?
Do you have a Flexible Savings Account for your healthcare expenses? If so, think of some ways to spend your money before the year runs out. Maybe some new glasses or braces for the young ones? Many plans are “use it or lose it”. This means the money is gone after December 31st, unless your employer allows you an extended-access option for your 2009 FSA funds. Even if this is the case, you’ll still have to use the funds by March 15th of 2010.
9. Have you changed jobs this past year?
Now is the time to consider a rollover. Any old 401(k)s and other retirement plans can be consolidated into one IRA to simply and potential reduce your management costs. You may even consider converting to a Roth IRA in 2009 or waiting until 2010 when the Adjusted Gross Income (AGI) limit goes away.
10. Is it time for a portfolio review?
Want to see how you’ve progressed toward your goals this year? What about planning for next year? To evaluate strategies as the economic recovery progresses, now may be one of the best times to seek a Certified Financial Planner™ professional otherwise known as a CFP®. This will allow you to get some different points of view on your financial situation.
Those who create financial plans tend to sleep much better at night! If you want a better understanding of where you are on your financial journey, often meeting with a CFP® allows you to access, prepare, and organize your financial life. Get started today!
This article was written by Jay Peroni. Jay Peroni, renownedfinancial advisor and author of The Faith-Based Millionaire and TheFaith-Based Investor, is an expert authority on the subject of”Faith-Based Investing.” He is the editor of Faith-BasedInvestor, a stock newsletter, and is President & CEO of Values FirstAdvisors, Inc – a firm dedicated to values-based investment management and financial planning.
Photo by tranchis
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{ 6 comments }
Some great tips here. Roth IRA is the main one for me. Need to start funding one as taxes are only headed one way in the future – up!
Thanks for the reminder about the first-time home buyer tax credit, aka “haven’t bought a home in the last three years” tax credit. I didn’t realize the credit was boosted to 8 grand. And I had thought the absolute max income level to qualify was $75K, and so I hadn’t looked into this enough to realize I could get at least a partial credit. I am suddenly having to scramble to lower my AGI as much as possible in the next few weeks in order to maximize my credit. Makes me wish I’d have sold some investments earlier this year when stocks were down to add some capital losses to my AGI. I should have done that regardless but it’s too much of a pain figuring out when you bought each share of stock (or mutual fund) and how much you paid.
@Mark – Good luck in your scramblings. How are you going about that?
I’m going to drastic measures because my options this late in the year are pretty limited. I am contributing the maximum to my 401K for the final one or two paychecks of the year. That would be 50% of my salary. I don’t think I can sell any investments for much of a loss because I haven’t invested all that much in non-retirement accounts in the last five years. There’s not a heck of a lot I can do in any case to reduce my AGI.
Wow, 50% contributions to the 401(k). You are the man, Mark. I had to bump mine up to 20% to make the max, but 50% is awesome!
I hope I don’t forget to reduce my contribution down to a sustainable amount after the last payday of this year. I can contribute this much in the short term because I have quite a bit of spare cash laying around that I can use to make up the shortfall to my take-home pay. If only I had the foresight and common sense to move that cash (earning an eye-popping 0.9%) into stocks earlier this year… :-/
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