Before 2009 ends, some things you might want
to consider.
Fall is the time
to consider some year-end financial moves – little and not-so-little things you
might do to plan to improve your financial position.
You could put more in your 401(k) before they play
“Auld Lang Syne”. As you only get one chance to save for retirement
and an annual deadline to make retirement plan contributions, you could
increase your final retirement plan deferrals of 2009 to the maximum allowed by
your plan, assuming your finances permit you to do so. Contributions to traditional IRAs and
401(k)s are usually made with pre-tax dollars and thereby could help you reduce
your tax bill.1
If you haven’t
contributed to your IRA or Roth IRA for 2009, you have until April 15, 2010 to
make that move. You can contribute up to $5,000 to an IRA (or spread up to
$5,000 of contributions across multiple IRAs) for tax year 2009; those over age
50 may contribute up to $6,000 to their IRAs for 2009.2 If your
modified adjusted gross income (MAGI) is into six figures, this may reduce or
even prohibit Roth IRA contributions depending on your filing status.
You
could try to harvest some losses. You might want to sell some losers to offset
some winners (not every security was a winner this year) and counterbalance
capital gains. Keep in mind
that if you are in the 10% or 15% federal income tax bracket for 2009, you
won’t have to pay capital gains tax – that break extends into the 2010 tax year
as well. If you want to sell, sell carefully – you don’t want to generate so
much income that you creep into a higher tax bracket.3
You could try to pick up some tax credits. Are you
thinking about buying a home? The up-to-$8,000 first-time homebuyer credit has
been extended to the end of April and complemented by its new variant, the
up-to-$6,500 credit for move-up buyers. Remember, the phase-out limits on that
credit just rose – they are now $125,000 for single filers, and $225,000 for
joint filers. The home has to have a price tag of $800,000 or less and it must
be your primary residence. A first-time homebuyer is defined as someone who
hasn’t owned a home within the past three years; a move-up buyer is defined as
a buyer who has lived in the same primary residence for a stretch of five
consecutive years or longer.4
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 2009.5
Do you have
sons or daughters in college? The Hope Credit has become the American
Opportunity Tax Credit, a credit of up to $2,500 toward qualifying college
expenses. Phase-outs kick in at
$80,000 MAGI for single filers, $160,000 MAGI for joint filers.6 Additionally,
you could contribute a little more to a 529 plan before the year ends.
Prepay some deductible expenses. If you are
pretty sure you will be in the same tax bracket or a lower one in 2010, think
about making a thirteenth payment on your home loan in 2009 to boost your
mortgage interest deduction, or prepaying your property taxes if your financial
situation lets you do so.
Spend that FSA money. Do you have a
Flexible Savings Account for your healthcare expenses? Think about getting some
new glasses or braces, or find some way to use that money – money you might
lose after December 31, unless your employer allows you the extended-access
option to your 2009 FSA funds (in which case you’ll still have to use them by
March 15 of next year).7
Sit down with your financial advisor for a
portfolio review. See how
(well) you’ve done this year. Think about next year, and what you might do as
the economic recovery progresses. Discuss some of the different aspects of your
financial situation. If you want a better understanding of where you are at
financially, this is the chance to gain it.
Citations.
1
foxbusiness.com/story/personal-finance/retirement-advice-ages/
[12/26/08]
2 irs.gov/retirement/article/0,,id=202510,00.html
[11/10/09]
3 usatoday.com/money/perfi/taxes/2007-06-15-mym-capital-gains_N.htm [6/15/07]
4
money.cnn.com/2009/11/05/news/economy/Extending_unemployment_benefits/index.htm?postversion=2009110612
[11/5/09]
5
irs.gov/newsroom/article/0,,id=206875,00.html
[11/13/09]
6
irs.gov/newsroom/article/0,,id=205674,00.html
[11/6/09]
7
bankrate.com/finance/money-guides/use-fsa-money-so-you-don-t-lose-it-1.aspx
[2008]