NEWS

Making Cents: New Year's resolution - don't wait

John P. Napolitano

You've seen the decorations in the stores. That tells me that the year end is approaching, and there may be some last-minute financial moves worth considering.

Let's start with the portfolio. Do you still have losses that you may be able to harvest by selling a losing investment and perhaps getting some tax benefit? Remember that you can deduct investment losses up to $3,000 per year against any other type of income. If you have gains from funds or other investments that you've already sold or are thinking about selling this year, selling investments with losses before the year ends could significantly reduce or eliminate the taxation.

On the flip side, if you have losses from previous years, perhaps there is an opportunity to create losses this year to eat up those carried-forward losses.

Retirement contributions are not only a great way to save current income taxes, but obviously a great way for you to save. Consider maximizing your 401(k) contributions for the remaining six weeks of the year, or contributing to any other plans offered by your employer. If you are eligible for an IRA contribution, you have until the date that you file your 2009 tax return to make that contribution, but why not make it as soon as possible? Having the money invested early can work out well if you are otherwise earning taxable interest or gains with that money.

I think that for this year, making nondeductible IRA contributions makes a lot of sense. Obviously, this is just another way to stash away money for the future, but it can also turn into tax-free money at the stroke of midnight 2010 by making a Roth conversion on these funds. Roth IRAs are eligible to all taxpayers in 2010 regardless of your tax bracket. Combine this with the likely small growth from now until the conversion on your 2009 nondeductible IRA, and you've got a smooth way to get more funds into the tax-friendly world of Roth IRAs.

If you own a business, there are a few more things to consider before the year ends. Consider terminating the company retirement plan if employee and profit levels have declined in the past year. Has the company expanded this past year and is looking for ways to shelter income through greater retirement plan contributions? If the answer is yes, you may need to change that plan before the year ends to increase the amount that you want to contribute.

John P. Napolitano is the CEO of U.S. Wealth Management in Braintree, Mass. He may be reached atjnap@uswealthcompanies.com. For online discussion and more information, go to www.makingcentsblog.com.