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Your Year-End Financial To-Do List

Kimberly Lankford

New Year’s Eve is the deadline to make these six money-saving moves.



What year-end deadlines should I keep in mind for retirement savings and other financial accounts?

SEE ALSO: 12 Smart Year-End Tax Moves

December 31 is your last opportunity to take advantage of some valuable ways to save for 2012. Here are half a dozen year-end tasks to add to your to-do list:

Clean out your flexible spending account. Many employers require you to use up the money in your FSA by December 31 or lose it (although more companies now offer a grace period to March 15, so ask your employer for its deadline). You can use your FSA money tax-free for out-of-pocket medical expenses such as deductibles, co-payments, glasses, contact lenses, contact lens solution, dental visits, prescription drugs and many other bills. For more information see 7 Smart Uses for Your Flex-Account Money and SaveSmartSpendHealthy.com.

Open a solo 401(k). If you have any self-employment income -- for example, you own your own business or earn freelance income on the side -- you can make tax-deductible contributions to a small-business retirement plan. You have several options, but depending on your income, a solo 401(k) may provide the highest contribution limits. You can contribute up to $17,000 plus up to 20% of your net self-employment income, up to a maximum of $50,000 in 2012. And you can add an extra $5,500 if you’re 50 or older. Your total contributions cannot exceed your self-employment income for the year. You must open a solo 401(k) by December 31, but you have until April 15, 2013, to make your 2012 contributions. See How the Self-Employed Can Save for Retirement for more information.

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Contribute to a 529 college-savings account. About two-thirds of states in the U.S. offer a state income tax deduction for 529 contributions, and most require you to make the contribution by December 31. (A few states give you until April 15, 2013, to make your 2012 contribution. They include Georgia, Oregon, Mississippi, Oklahoma and South Carolina.) See Rules for Deducting 529-Plan Contributions for more information about qualifying for the deduction, whether you’re a parent, grandparent, other relative or even a friend.

Contribute to a health savings account. If you have a health insurance policy with a deductible of at least $1,200 for individual coverage in 2012 (or $2,400 for family coverage), you can contribute to a health savings account and get a triple tax benefit: You can make tax-deductible contributions of up to $3,100 for 2012 if you have single coverage (or $6,250 for family coverage), the money grows tax-deferred, and it can be used tax-free for out-of-pocket medical expenses in any year. For more information, see What to Know About Health Savings Accounts.

Take your required minimum distribution. After you turn age 70½, you must take required minimum distributions from your traditional IRAs and your 401(k) accounts (although there are some exceptions if you’re still working for the employer who sponsors your 401(k) plan). You have until April 1 to take your first RMD, but you must make your required withdrawals by December 31 every year after that. For more information, see Answers to Questions About Required IRA Distributions.

Convert a traditional IRA to a Roth for 2012. You can convert money from a traditional IRA to a Roth anytime, but the uncertainty about tax rates in 2013 is leading more people to look carefully at converting some money to a Roth before December 31, 2012. See Year-End Tax Moves for 2012 for details.

Got a question? Ask Kim at askkim@kiplinger.com.



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