Top 10 Year End Contributions

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Top 10 Year End Contributions
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As the year wraps up, it's natural that we turn our attention to the coming year and the fresh start that comes with it. There are many wishes for a prosperous year, but it takes more than just wishing to make that happen. Instead, you need to make plans now so you can reap the financial rewards later. To get you started, Lule Demmissie, managing director of investment products and retirement for TD Ameritrade, shares 10 steps you can take to start the new year with a financial bang.

Get Maxed Out
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Get Maxed Out

Take any extra monies, and invest in your 401(k). "Many people wonder what to do with their year-end bonuses," Demmissie said. "Using a portion of it to help max out retirement contributions for the year can be a great way to bolster savings, especially if they haven't been good at saving regularly." Check with your human resources or tax professional for contribution limits.

Play Catch-Up
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Play Catch-Up

If you have maxed out your 401(k) contributions for the year, you may still be able to contribute. "In addition to the 401(k) maximum, any individual over age 50 by the end of the calendar year can make a $5,500 catch-up contribution to their 401(k)," Demmissie said. Check the IRS website for contribution amounts.

Related: Retirement Topics - 401(k) and Profit-Sharing Plan Contribution Limits

Don't Overlook Your IRA
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Don't Overlook Your IRA

Bulk up your IRA. "While the deadline is technically April 15, make contributions to an IRA throughout the current tax year and take advantage of the tax benefits," Demmissie said. For Roth IRAs, all contributions come with federal tax-free growth and tax-free withdrawals. With traditional IRAs, you have the ability to deduct contributions on income taxes now and pay the taxes upon qualified withdrawals in retirement. Because there are adjusted gross income limits for deductibility for both Roth and traditional IRAs, consult a tax expert for your specific situation.

Invest in a Child's Future
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Invest in a Child's Future

Paying college expenses now could benefit both you and the student. "Consider opening and/or investing in a 529, Coverdell or custodial account," Demmissie said. "Some 529s have tax benefits depending on the state of residence. And parents can take advantage of the American Opportunity Tax Credit if they are currently paying their child's college tuition." Adjusted gross income limits do apply so talk with your tax professional for specific details.

Related: American Opportunity Tax Credit: Questions and Answers

Pay Down High-Interest Debt
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Pay Down High-Interest Debt

Eliminating high-interest credit card balances could save you money in the long run. "The annual interest rates on some credit cards can be as high as 19 percent," Demmissie said. "If only the minimum amount is paid each month, a seemingly small purchase could take months to pay off and over time could cost significantly more in interest." Going forward, aim to pay off credit card balances in full every month.

Invest In Your Home
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Invest In Your Home

Making improvements to your home could result in significant tax deductions in the coming year. "There are several tax credits for making energy-efficient improvements to a home," Demmissie said. "Or consider making general home improvements that can pay you back when it comes time to sell the house." These expenses can be deducted from the capital gains at the time of sale, she added. However, check with a tax professional to see if there is a maximum on expenses as well as a time deadline for said deductions.

Have a Giving Spirit
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Have a Giving Spirit

The holiday season is a prime time for donating to charities, but remember that you can give all year long. In addition, keep in mind that donations are not limited to financial contributions. You also can donate clothes, toys, electronics, housewares and more. The key is to get a receipt for all donations from the charitable organization. Also, talk with your tax expert to see if there are any adjusted gross income limits for charitable donations.

Keep Your Money to Yourself
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Keep Your Money to Yourself

Examine your paycheck to see if you have the appropriate withholding because you could be handing over more money than is required. "In 2012, the average tax refund was slightly below $3,000," Demmissie said. "Rather than loaning Uncle Sam the money, consider adjusting withholdings to invest the extra money throughout the year."

Save for a Rainy Day
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Save for a Rainy Day

If you receive an end-of-year bonus, Demmissie said to use it to start an emergency fund. "It's a good idea to have six to nine months' worth of expenses set aside for unforeseen emergencies," she said. Consult your personal accountant or tax professional for the best place to park these funds. It could be a general savings account, a certificate of deposit or even a money market account.

Take a Look
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Take a Look

As the year comes to an end, Demmissie said it's important to review your contributions and your portfolio allocations, and start off the new year on the right financial foot. "Have your financial objectives changed?" she said. For example, do you have children now? Are you caring for your parents? Did you receive a large inheritance? Has something happened in life to affect your financial risk profile, such as you lost your job? "Factor these into your objectives," Demmissie said.

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