As the new year approaches, Jake Gibson, 31, has a few last-minute money moves to make. The co-founder of NerdWallet.com tries to give between 5 and 10 percent of his annual income to charity each year. A self-described procrastinator, he and his wife usually play catch-up in December to make sure they reach that goal.
"I believe it's the best investment for the long-term benefit of society," he says. "Rather than give that money to the government, which is remarkably inefficient with spending and has little-to-no accountability, we give it to our favorite charities, which spend efficiently on causes we care about." He and his wife have donated to Robin Hood, an organization that fights poverty in New York City, Room to Read, which focuses on literacy, and DonorsChoose, which lets donors select school projects they want to fund.
Donating to charity is just one smart year-end money move to consider. Others including tapping out health savings accounts, ramping up retirement savings to hit the maximum allowed for the year and investing in energy-efficient improvements at home that can also lower your tax bill.
Here are seven smart money moves to make before the ball drops:
Bump up your automatic savings. The Employee Benefit Research Institute reports that on average, employees contribute just 7.5 percent of their income to their retirement accounts. But most people need to save at least 15 percent to be on track, according to Vanguard founder John Bogle. Instead of worrying, just save more, he urges.
Double down on retirement savings. Since this year's limit on tax-advantaged retirement accounts like 401(k)s is $17,500 (people ages 50 or older can contribute an additional $5,500), if you're under that limit, you still have time to reach it. You can contribute up to the 2013 limit until April 15, 2014.
Consider opening an after-tax savings account. If you find yourself hitting up against the savings limit on your tax-shielded retirement account, consider opening an additional after-tax account that's dedicated to your retirement. Just because the law prohibits you from putting more than $17,500 into your 401(k) doesn't mean that's all you should be saving – it's just all you'll save out of pre-tax money.
Use special savings accounts during work breaks. Just because you're not earning a steady paycheck doesn't mean you should put retirement savings on hold. Spousal individual retirement accounts for non-working spouses and Roth IRAs can make this easy. Roth IRAs are useful for freelancers, students and other people with unpredictable income streams because you contribute money to the account after paying taxes on it, which means you can decide how much to contribute after considering your other expenses. If you think your tax rate is lower now than it will be when you take the money out during retirement, you'll benefit.
Get new glasses. If you haven't spent the money in your employer-sponsored health savings account by the end of the year, you might want to consider stocking up on eligible expenses, from new glasses to contact lens solution. In most cases, money that isn't spent is forfeited. The deadline for 2013 expenses varies, but many companies extend the deadline to mid-March 2014.
Install a new roof. Because a handful of energy-efficient tax breaks require the purchase of materials before Jan. 1, 2014, homeowners should consider investing in those improvements before the end of the year. Water heaters, air conditions, solar energy systems and windows are among the items eligible for tax credits. (Details can be found at energysavers.gov.)
Create a college savings account. Any contributions made to 529 college savings accounts before Dec. 31 are tax-deductible for the year. Plus, contributions make great presents, since anyone can contribute, including grandparents and friends. As long as the money is used for higher education, it is not subject to federal income taxes and in some cases is also exempt from state income tax.