With the holidays and exhaustion that comes with them, you might be tempted to avoid tackling any new tasks until long after the new year. But now is actually one of the best times to maximize your money and start managing your finances to set yourself up for future financial success.
Here are six steps to take before 2014 starts:
1. Maximize retirement contributions. You can contribute up to $17,500 ($23,000 if you're age 50 or older) to your 401(k) plan in 2013. So if you're falling short, now's the time to funnel more cash into your pre-tax account. If you hold individual retirement accounts, you can contribute up to $5,500 ($6,500 if you're age 50 or older), so check your year-to-date contributions and see what you can do to maximize these savings.
2. Make more charitable contributions. Making charitable contributions is a good way to reduce your tax liability. Some organizations, like the Salvation Army, will pick up donations from your house and save you the time required to drop them off. Be sure to keep detailed documentation on what, where and when you donated, along with the approximate value of the items you donated. Most major charities provide valuation calculators on their websites to help you with this last step.
3. Use up your flexible spending account. If your employer provides a flexibe spending account for health expenses, the funds might expire at the end of the year. It's likely too late to schedule doctor appointments or procedures, but if you have prescriptions or medical-related purchases, make them now. The last thing you want to is forfeit that money.
4. Start your tax return. Now's a great time to start setting up your tax return for next year. Organize your deduction documentation and investment statements, then start filling in your basic tax information. Once your W-2s arrive at the beginning of the year, it should be easy to finalize your filing.
5. Convert your traditional IRA. Traditional IRAs require you to pay taxes on withdrawals during retirement. By converting your traditional IRA to a Roth IRA, you can avoid these future taxes, although the conversion would count as taxable income this year. With uncertainty over government programs like Social Security and Medicare, this isn't a bad move to consider, especially if you're currently in a low tax bracket. If you have a sizable amount in your traditional IRA, and don't want to incur taxes on a full conversion, you could start by converting a portion to limit your current tax burden.
6. Review monthly services. Do you ever get a sense you're paying too much for cable TV or Internet service? Now's a great time to do something about it. Check the competition for all your monthly services to see if you can find cheaper subscriptions that will provide more savings.
Firming up your finances before 2014 arrives is a great way to identify financial New Year's resolutions. Whether this is the year you buy your first house, start an emergency fund or amass a predetermined amount in savings, you can only identify financial goals and create a game plan by taking the time to assess your current standing.
David Bakke is a financial contributor for Money Crashers and writes about budgeting, money management and investing.