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Professional Corner

5 Year-End Money Moves

by Diane Harris

The first step toward getting your family in great shape for a financially healthy New Year is to make sure you’ve successfully wrapped up money matters for the old one. By taking these steps before December 31, you can trim your taxes, cut your health-care expenses, come up with some extra cash for savings, and get ready to make the most of your money in the new year. Some moves to make now:

Be charitable

Take an afternoon to pull together the clothes and toys that your child has outgrown, as well as your own cast-offs, and cart them to your local Salvation Army center, homeless shelter, or other nonprofit groups that helps the needy. You’ll gain a tax deduction on your return, not to mention cleaner closets. If your child is old enough – 3 is a good age to start – explain what you’re doing and have him help you sort through the items you’re planning to donate. “This is a wonderful and very graphic way to introduce young children to the concept of charity,” says Deena Katz, a certified financial planner in Coral Gables, Florida.

Remember to get a receipt that states the value of the items you’re donating: the IRS requires proof of any noncash contributions valued at $250 or more.

Use up whatever’s left
in flexible spending accounts

These employer-sponsored accounts allow you to pay up to $5,000 of your annual childcare and medical expenses with pretax income – in essence, turning them into tax deductions. The only drawback: you lost any money that’s still in your account at the end of the year. To use up what’s left, you can pay your January bill for childcare before December 31. To spend the remaining money in your health-care account, you might pick up a spare pair of glasses or contact lenses, or have the kids’ teeth cleaned, or stock up on prescription medications. (For a full list of the health-care expenses that you can pay from a flexible spending account, check with the human resources contact in your office.)

Reassess your employee benefits

Around this time of year, companies that offer a choice of benefits traditionally ask their employees to make selections for the coming year. Rather than simply choosing whatever you took last year (as most people do), take the time to reevaluate your options. Among the trends affecting plans: higher co-payments for health plans; more doctors dropping out of managed care networks; greater financial incentives to buy generic over brand-name drugs; and a growing number of HMO-like dental plans in which you’ll pay less if you have your teeth fixed by a participating dentist.

Check to make sure your pediatrician and other doctors will still be part of your managed-care network. Also compare out-of-pocket costs that various plans change – not just deductibles and co-pays but also the lifetime maximums and charges for going out of your network. If your company offers supplemental life insurance (coverage above what it offers for free) and flexible spending accounts and you haven’t signed up in the past, you might do so now.

Open an Education IRA

As part of the tax-cut bill enacted in June, 2001, Congress gave these education savings accounts a big boost by raising the amount you can contribute per child, from $500 a year in 2001 to $2000 a year beginning in 2002. It also expanded a list of expenses that qualify to include elementary and secondary-school bills. In combination with the Education IRA’s already existing charms – earnings grow tax free, and withdrawals for qualified education expenses are tax free as well – the changes make these accounts a winner.

Resolve to get your finances in good shape next year

Along with pledges to eat less and exercise more, vowing to do a better job of managing money is the most common of all New Year’s resolutions.

As with adopting a healthier lifestyle, success comes easiest when you don’t overpromise: rather than taking on all your financial foibles at once, focus on a few key items. Vow to put the credit cards away and pay for purchases with cash or a debit card – if you don’t have enough in the bank to cover the cost, don’t buy. Look at your budget to figure out how you’ll come up with extra money to put in the improved college savings vehicles, such as the Education IRA or a 529 account. One or two fewer fast food meals a week can save you $1000 a year or more.

Don’t neglect saving for your own financial future, either. Before the year ends, bump up your contributions to your 401(k), or, if you’re a stay at home parent, fund a spousal IRA as close to the max as you can. Providing for yourself in your older age means you’ll never be a financial burden to your kids, which is a pretty nice gift to give them.

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Last modified: January 26, 2013