Updated: May 3, 2013 12:14PM
Originally published: November 21, 2005
After you’ve devoured the turkey and settled down on the couch to watch the football games, you’ll still be left with a long lazy weekend. Put the time to good use as we enter the final weeks of the year. Instead of rushing out to shop, here are seven useful suggestions for reorganizing your finances to enter the new year in better shape.
Check your 40l(k) statement. If you haven’t contributed the maximum to get the free money in your employer’s matching contribution, ask the HR department to take a larger deduction out of your next paycheck. And while you’re at it, increase your contribution rate for next year. For 2006, you can contribute up to $15,000 to a 40l(k) or 403(b) plan. And if you’re over 50, you can make additional “catch-up” contributions of $5,000.
This is also the perfect time to take another look at your investment allocations within your retirement plan. You can get a free one-year trial for the FinancialEngines.com advisory service by clicking on the icon at www.TerrySavage.com. They’ll give personalized advice on which funds you should use to meet your retirement goals.
Begin tax planning. Take a look at the investments you hold outside your retirement plans. You’ll probably receive big cash distributions from your mutual funds this year -- both short- and long-term gains, on which you’ll have to pay capital gains -- since the market is up sharply from the October 2002 lows. Don’t be surprised by these distributions; instead plan to sell some of the stock losers you’ve been holding to offset the gains.
Use your flex spending plan. You have a couple of weeks to spend the money you put aside in your medical flex spending plan. If you can’t squeeze in doctor visits, there are many ways to mop up that excess cash. Go to Drugstore.com for a list of supplies that qualify for medical expenses, from stop-smoking aids to footcare.
Or go to www.1800Contacts.c-om and purchase next year’s supply of contact lenses. They’ll even give you a coupon for money off your next order.
Plan charitable giving. Avoid the year-end rush to make contributions and take tax deductions. This year there’s a greater incentive to give: an increase in the amount you can deduct on cash contributions to any charity as a result of Hurricane Katrina.
If you can’t think of a reasonable destination for your charitable urge right now, but do want to get that tax deduction, use one of the popular Charitable Gift Funds such as those run by Fidelity and Vanguard. You’ll get an immediate tax deduction, a chance to let your money grow tax-free, and you can ultimately designate any recognized charity as a recipient.
Give money to your kids. Well, not actually. You don’t have to hand over the cash. But you can contribute to a 529 College Savings Plan for a chance at tax-free investment growth that can be withdrawn for any college expense, at any school, in any state. The money can be shifted between your children, if one gets a scholarship, for example. For details and to compare state plans, go to www.SavingforCollege.com.
You could also set up a Uniform Gifts to Minors Act account at a bank or brokerage firm, and take advantage of the allowable $11,000-per-year gift (in 2006 it will be $12,000). But be warned that if you apply for financial aid for college, money held in a child’s name weighs seven times more heavily against you in the financial aid formula.
Evaluate your life insurance. Now that you’re as stuffed as the turkey, it’s time to think about your heart and your health. Go to one of the online Web sites such as www.AccuQuote.com to check the prices of term life insurance. They’ve dropped sharply in the past year. You might want 20-year level term that could be converted into a cash value policy in the future. But don’t give up your old policy until you’re sure you qualify for a new one at premium rates.
Help mom, dad and grandparents with Medicare Part D. As noted in a recent column, and headlined in the newspapers last week, the signup for Medicare’s new drug benefit is off and running. Or crawling. The government expects seniors to use their plan comparison tool at www.Medicare.gov to choose the plan that will save the most. They need help! Just tell them to get a list of their prescriptions and dosages, and help them through the process.
Just pick one or two of the above -- and remember to offer help drying the dishes. When the year-end crunch comes, you’ll be glad you got an early start. And that’s The Savage Truth.
Terry Savage is a registered investment adviser. Distributed by Creators Syndicate.