5 Financial Tips for the end of 2010

Wednesday, December 08, 2010

Dan Forbes, GoLocalProv Financial Expert

Looks like Congress is going to give us an early gift by extending tax cuts. As it is the holiday season, what better way to celebrate than a thorough financial evaluation? OK, it’s not exactly diamonds or tickets to PPAC, but December is a good month to get your financial house in order heading into the New Year. Here are some things you can do now before your house is inundated with visiting relatives:

Rebalance your portfolio – Take a good look at your investments. Depending on where you invested this year, you should have gains in both stocks and bonds. Rebalancing doesn’t necessarily mean selling off your holdings, but simply getting the percentage allocation back in line with how you started the year. For example, your small company and emerging market stocks may have outpaced your bonds this year. Might be time to take some stock gains off of the table and get that money invested in a less aggressive area.

Take advantage of the energy efficient home improvement credit – Feeling a draft from those old windows? Until the end of the year, energy-efficient home repairs can result in a federal tax credit. This includes replacing windows, doors, and/or HVAC systems and installing new insulation. If you plan on making any of these improvements in the near term and you can afford it, now is the time to move ahead to take advantage of the tax credit.

Convert that IRA to a Roth – You may never have this chance again. No income limits. Taxes spread over two years. If you have a traditional IRA and cash outside of retirement accounts to pay the taxes due on conversion, this might be a home run for you. The most attractive feature of the Roth IRA? No Required Minimum Distributions once you reach age 70 ½.

Review your estate planning – The plan currently passing through Congress puts the maximum estate tax at 35% on thresholds above $5 million. If you’ve had an estate plan completed, it’s time to pull those documents out of the filing cabinet and take a look. Remember that you need to take into account life insurance policies you own and business interests when calculating your estate.

Review your budget – This is my favorite. At the end of December, you now have a 12 month history of your spending. Use it! Where can you make some adjustments? Can you save on insurance costs, be it home, auto, life, or health insurance? Are you going out to dinner too often? If your credit card company sends you a booklet detailing what you’ve spent your money on, don’t throw it away! Use this information to establish a prudent spending plan for 2011.

Dan Forbes is a regular contributor on business financial issues. He leads the firm Forbes Financial Planning and can be reached at [email protected]