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4 Things to Get Done Before 2012 Ends

The holiday season is in full swing. But for investors, the end of the year is fast approaching, and that means you have just a little more than a month left in the year to take care of all the financial matters that need attending before 2013 rolls in.

It's not just about the fiscal cliff
Many investors have held off on planning because of all the tax provisions that are set to expire at the end of the year. Despite that uncertainty, though, the fiscal cliff doesn't change all the rules about traditional year-end planning. So before 2012 ends, take some time and make sure you pay attention to these four financial areas:

1. Fund your retirement accounts.
Taxes may rise and fall over the years, but if you don't take advantage of your chance each year to contribute to tax-favored retirement accounts, then you lose that opportunity forever. If you skip out on adding to your retirement accounts for 2012, you'll miss out on as much as $22,000 in extra retirement savings -- or $28,500 if you're 50 or older.

But not all retirement accounts get treated the same way. With 401(k) plans and other work-sponsored retirement plans, Dec. 31 is the drop-dead date for getting money set aside for retirement. For IRAs, on the other hand, the IRS gives you until April 15 to make contributions for the prior year. Still, even with IRAs, the earlier you can get money into your retirement account, the greater the benefit of tax-deferred or tax-free savings.

2. Rebalance your portfolio.
Many investors look at their portfolios on an annual basis to judge whether their risk levels are still within their comfort level. During strong market years, it's easy for portfolios to get out of whack, with winning asset categories suddenly representing a larger proportion of your overall portfolio than you'd typically want. Rebalancing involves selling off some of your winning investments to buy underperforming asset classes when they're relatively cheap. Often, those weaker performers will catch up in subsequent years, making the decision to buy low a smart one.

This year, both the stock and bond markets have posted modest gains, making broad-based rebalancing less vital. But if you make sector-specific calls with individual stocks in your portfolio, your success stories may leave you with highly concentrated positions. For instance, even after its recent pullback, Apple's (NASDAQ: AAPL  ) continued success this year has created concentration problems even in passively managed exchange-traded funds, as well as individual portfolios. Also, signs of bottoming in the housing market have pushed shares of homebuilders PulteGroup (NYSE: PHM  ) and KB Home (NYSE: KBH  ) higher, along with related companies like flooring specialist Lumber Liquidators (NYSE: LL  ) and building-materials company USG (NYSE: USG  ) . Taking some profits won't just lock in those gains; it will also leave you less vulnerable to potential reversals.

The benefit of rebalancing before the end of the year is that many people wait until after the new year begins to look at their finances. Beating them to the punch can help you avoid getting caught up in potential waves of selling.

3. Think about tax planning.
In most years, investors try to load in deductions and sell losing stocks to maximize deductions. With the fiscal cliff, though, some believe losses will be worth more next year, so they're suggesting that investors reverse their usual strategy and accelerate income while putting off deductions until next year.

Remember, though, that tax liability depends on many factors specific to your particular situation. Even if others might save by putting off deductions, you might be better off with traditional planning. Take the time to figure out where you stand, and you'll be better able to make the smartest decision for you.

4. Get your benefits in order.
For most workers, open enrollment for health insurance and other employee benefits will end soon. Choosing the right insurance plans, along with deciding how much to set aside in flexible spending accounts for health expenses, can save you hundreds in taxes.

Bite the bullet and take a look at the specifics of the benefits available to you. By comparing what's available to your particular needs, you can optimize your elections for 2013 to put more money in your pocket and maximize the tax benefits available.

Get 'em done
Procrastinating on year-end tasks is a time-honored tradition, but you're just about out of time. So don't wait any longer -- get these four things done now, and you'll reap the rewards throughout the year to come.

It's hard to get upset about having to rebalance solely because Apple has soared. The real question, though, is whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and more importantly, your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.


Read/Post Comments (7) | Recommend This Article (29)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 24, 2012, at 6:22 PM, HighVoltage627 wrote:

    This entire article is bunk. Everyone knows the world ends on dec 21st. Any future planning past that is a waste of time.

  • Report this Comment On November 29, 2012, at 11:52 AM, TMFGalagan wrote:

    @HighVoltage627 - I stand humbly corrected. Stand by for my next article, "4 Things to Get Done Before the Mayan Calendar Ends." :)

    best,

    dan (TMF Galagan)

  • Report this Comment On November 29, 2012, at 12:31 PM, mdk0611 wrote:

    A couple of more possibilities.

    1. If there is going to be a cap on itemized deduction starting in 2013 consider making charitable gifts to a donor advised fund before years end (whichever calendar you use). Get the full deduction in 2012 and distribute the actual donations in 2013 or later.

    2. Watch for changes in the exemption amount for estate tax purposes. If nothing is done it drops to $1 mil. on 1/1/13. Consider gifting if that appears likely, although it certainly would be best if you consulted a professional to see what would be best in your personal situation.

  • Report this Comment On November 29, 2012, at 3:47 PM, Darwood11 wrote:

    Hey, why not add "Get a new furnace before the DOE 90% rule" occurs in northern climes?

  • Report this Comment On November 29, 2012, at 3:51 PM, whyaduck1128 wrote:

    If you're in one of the top tax brackets and not up against the potential itemized deduction cap for 2013, consider deferring the charitable contributions you'd normally make in December 2012 to January 2013. Your contributions may wind up saving you more in 2013 than they'd help 2012.

  • Report this Comment On November 29, 2012, at 4:57 PM, breakingeven wrote:

    For 2012, the $22k number is presumably $17k for 401k/403b and $5k for IRA (preferably Roth?)

  • Report this Comment On November 29, 2012, at 5:17 PM, mdk0611 wrote:

    kahuna -

    How was your tax planning complete in 2010 and this year when you didn't even know what the tax rules were going to be before December?

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Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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