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Fidelity - End of Year Todo List

Posted by Ben Capitano


Fidelity Investments

Running time: 4:00


This is Jane. When the year is nearing its close and the air begins to chill, Jane enjoys making snow angels, watching football, and avoiding the mall. Worthy tasks indeed. But what if there were a few smart moves that Jane could do right now that really help her bottom line next year? Well, there are!

First: Jane could make an extra contribution to her retirement plan. This will help her now and in the future. This year, she'll get to reduce your taxable income, if she's got a traditional IRA or 401(k), subject to certain conditions. If she's got a Roth account, she'll save on taxes when she withdraws the money. 

Over the long term, the benefits could be even bigger. Let's say she gave $500 more each year. She put the money into a stock mutual fund that grows by 7 percent per year. After 20 years, she'd have about $22,000 more than double what she put in! Next, let's get Jane's portfolio back in balance. 

Jane owns a mix of investments based on her savings goals and her tolerance for risk. As the year went on, some of her investments went up and others went down. These changes may have changed the investment mix. 

Her no portfolio might be riskier or more conservative than she wants. So once a year Jane should consider re balancing her portfolio. That could mean buying new stocks, bonds or mutual funds and selling old ones until she gets back to her intended mix. 

Third: Jane should check her withholding. Like a lot of people, Jane gets a big tax refund each year. That's great right? Actually, not so much. Jane could have been using that money to pay her monthly expenses. Even better, she could have invested it sooner to potentially earn more, faster. It's time for Jane to go back to that W-4 tax form she filled out when she started her last job. Maybe Jane got married. Or maybe she got a second job.There could be lots of reasons that form needs changing. So if you're getting big refunds, you may want to review that form. It's on file with your employer.

Next, it's time for charity. If you've been meaning to give to charity, do it now, before December 31st so you can still take a tax deduction for this calendar year.

Fifth: Consider selling investments that have lost value. We're talking about your taxable investments here - they're usually outside your retirement plan.  See, the IRS lets you use investment losses to offset taxes on your investment gains and even your ordinary income. Here's a quick example: If Jane sold a stock that lost $3,000 she could offset up to $3,000 of her income that year. If her marginal income tax rate is 25%, she just saved $750 in taxes. Tax-loss harvesting is a tricky maneuver. So do your homework and talk to a tax professional to make sure you follow the rules and reap the benefits.

Finally: Celebrate the New Year with Jane, who's excited to start the year off on the right financial foot. Check Fidelity.com to learn five more ways to get your money ready for 2015.