Ah, the last week of the year: Time to celebrate with family and friends, catch a high-quality movie or two, and sneak the periodic treat from the cookie and candy pileup in the kitchen. But year-end is also a good time to tackle financial tasks, including making last-minute retirement-plan contributions, donating to charity, and rebalancing a portfolio.
In the Personal Finance forum of Morningstar.com’s Discuss boards, I recently asked Morningstar.com users which tasks were on their financial to-do lists in 2012′s waning days. PKIAN quipped, “Year-end usually means more spending than saving!” And he’s right. But other readers shared their year-end financial goals, including increasing tax deductions, whipping their portfolios into shape, and (finally) tackling their estate plans. To read the complete thread or share your own year-end strategy, click here.
‘It Seemed a Good Time’
Because the end of the tax year is the deadline for many tax-related items, many readers’ to-do lists centered on reducing the tax collector’s cut of their 2012 returns.
Harvesting long-term capital gains–a popular strategy given the planned expiration of the Bush tax cuts at year-end–emerged as a timely strategy for SusanR. She wrote, “My husband does contract work since retiring several years ago. Since he didn’t work first 10 months in 2012, we are in the 15% tax bracket. We will probably be in the 25%-28% bracket next year. It seemed a good time to harvest very long-term capital gains. I estimated how much we could sell and still pay 0% capital gains tax on [our] 2012 return. I sold yesterday and bought back as we still want to own the stock.” (This video provides additional color on the strategy.)
LetItBe, like many savvy investors, has viewed converting traditional IRA assets to Roth as a way to blunt the impact of what could be higher taxes in the future. “I’m converting the last of my traditional IRAs to Roth–I expect to pass them on to kids. I’m prepaying some property taxes to help offset the income from IRA conversion.” (Note that pushing forward deductions and other strategies can help offset the taxes due upon conversion of a traditional IRA to a Roth.)
Cybchris, meanwhile, conducted a trial run of his tax return for 2012, which in turn led him to bump up his contributions to his SEP-IRA. (This article provides an overview of tax-advantaged investment wrappers for the self-employed, including SEP-IRAs and Solo 401(k)s.) “I did a near-final business profit and loss so I could mock up our 2012 tax return in a Numbers spreadsheet, which allowed me to more accurately estimate our fourth-quarter self-employment tax. Based on the updated P&L, I found we could save a lot more in our SEP-IRA so I transferred more to our brokerage.”
Recognizing that Dec. 31 is the deadline for making charitable contributions and deducting them on his household’s 2012 tax return, BMW Lover plans to use the year’s waning days to spread good cheer–and he’ll earn a tax break to boot. “The one thing left to do is to make sure our favorite nonprofits are taken care of. We will be transferring appreciated stocks to our primary recipient and the others will be receiving cash. Our investments are where I feel they should be, and I’m sleeping well going into the holidays knowing that we have a well-positioned portfolio.”
‘There’s Always Room for Improvement’
For other posters, reviewing investments is a must-do. LetItBe wrote, “I definitely will review investments (mostly mutual funds)–drop losers and decide on winners for the next year. I had a decent year, but there’s always room for improvement.” (Investors who hold the losing securities in a taxable account can use those losses to offset capital gains and, if their gains are exhausted, ordinary income.)
Enoui enumerated several investment-related to-dos, including the following: “Update my Morningstar portfolio with end-of-year holdings.” and, sagely, “Try to relax and take a long-term view.”
Other readers noted that they’re taking advantage of planned down time to simplify their investment mixes. Carrie shared, “I’ve been looking at consolidating some accounts (currently have two Roth IRAs) and paring down my number of holdings in my retirement accounts. That isn’t end-of-the-year critical, but I should have time to take action over the Christmas holiday.”
Fine-tuning his retirement strategy in anticipation of volatile markets is top-of-mind TraderBob, who wrote, “Being a trader, I am averse to drawdowns. Since we will both be fully retired next year, however, I have allocated part of my portfolio to long-term positions for growth and income. The open question for me at this year’s end is how best to deal with drawdowns in the long-term portfolio given the inevitable bear markets in the future–other than by just reducing withdrawals.”
‘We Have Procrastinated Long Enough’
Other readers said they are are looking forward to checking estate planning–often the most procrastinated to-do in the whole financial-planning world–off their lists. Retire2020 wrote, “For my wife and me, [our will is] the most important thing which we have procrastinated long enough. Thank God it’s getting traction and will be signed before the end of the year.”
Carrie is also getting close on the estate-planning front, writing, “I have an appointment with my estate-planning attorney tomorrow to review the documents she prepared (trust, will, etc., etc.).”
The turning of the calendar page provides a good opportunity to assess how well you did on the budgeting front in the previous year. Thus, an item on Enoui’s year-end to-do list is to “run [Internet banking] reports to review spending and income.”
As part of the budget-review process, Richendric plans to review his personal inflation rate to assess year-over-year changes in outlays for basic living expenses. “One additional thing I now do near calendar year-end since I’ve been retired is to total my itemized fixed expenses (real estate taxes, insurances, utilities, and so on) and calculate my core personal inflation rate for the year.”
Finally, Chief K wisely noted that it’s best to avoid the mad scramble to complete financial-planning tasks at year-end, sharing this strategy: “I prepare a to-do list in early March, shortly after filing my taxes, for the coming 12 months. I review/adjust it two or three times during the year. I prefer to schedule my to-dos at least a month out to allow myself plenty of time to reflect on them before executing each item on the list.”
See More Articles by Christine Benz
Yahoo! Finance – Personal Finance
Title Post: What’s on Your Year-End Financial To-Do List?
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