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Color of Money

It Pays to Resolve Financial Matters by Year's End

By Michelle Singletary
Thursday, December 23, 2004; Page E02

It's hard to believe a year has gone by. Seems like just yesterday that my husband and I were popping the top on some sparkling cider to celebrate the beginning of 2004. And now here we are, rushing to meet with our accountant and financial adviser to make sure we've done all we need to do to start 2005 with our money straight.

What about you? Any financial matters you need to take care of before the end of the year? Can't think of any? Well, let me help.

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Year-end tax tips:

• In order to boost your deductions, consider paying both real estate tax installments this year or making your last estimated state tax payment in December instead of waiting until Jan. 15, says Fred Grant, a certified public accountant and director of tax content for TaxNet, an online tax preparation service.

• Don't forget to take your required minimum distributions from your IRA, Grant says. People over 70 1/2 years of age must take a certain minimum payout from their traditional IRA by Dec. 31 of each year or face a steep penalty. The IRS can impose a 50 percent penalty on the amount you should have withdrawn. Use the table in IRS Publication 590 to figure the minimum amount required. Just so you know, if you turned 70 1/2 this year, you don't have to take a distribution until April 1.

• If you haven't contributed the maximum to your tax-deferred 401(k) retirement savings account, do it before the end of the year, the Illinois CPA Society recommends. Some employers will allow you to catch up. So ask. For 2004, you can contribute a maximum of $13,000. If you're 50 or older, you can contribute $16,000.

• The Illinois CPA Society also recommends that you organize your tax records now, before the end of the year. Why? It gives you time to request copies of any missing documents and makes it less likely that you will miss valuable deductions when you file your 2004 tax return.

For more information on year-end tax planning tips, you should read "31 Tax Tips in 31 Days," a guideline prepared by the Ohio Society of CPAs. The series began Dec. 1 and concludes on Dec. 31, and it can be found on the society's Web site at www.ohioscpa.com. Click on the link for visitors.

Year-end money-management tips:

• A number of surveys find that one of the top New Year's resolutions people make is to get out of debt. But how are you going to do that without a plan? "Make a plan, not a promise," recommends the Million Dollar Round Table, an international association of financial professionals. By mapping out a financial plan, instead of listing each resolution, you'll have a tangible tool to make your goals a reality, the group says. To begin that plan, you should compile your bills and credit card statements. Tally up the totals so you know just how much debt you need to dig yourself out of. And if you need tips on how to accomplish this goal, pick up a copy of "Pay It Down!," the December selection for the Color of Money Book Club.

• Clean out your files. The end of the year is a good time to get rid of documents you don't need anymore. For example, up until now, you should have been holding on to the quarterly statements from your 401(k) or other retirement plans. But once you get the annual summary, if everything matches up, then shred and throw away the quarterly statements, Bankrate.com recommends.


• If you have a child in college, remember that Jan. 1 is the first day you can submit the Free Application for Federal Student Aid (FAFSA) form. Of course, to meet this deadline, you need to have the information ready. So start gathering the data now.

It's especially important to apply early because 2005 is going to be a competitive year, with tuition and enrollment at record highs, according to Mark Brenner, executive vice president of College Loan Corp. The number of students entering college is projected to increase to more than 16 million next year. And, as we all well know, tuition costs continue to rise. The average tuition for undergraduates attending four-year private universities jumped 6 percent this year, pushing the average price of attendance (including room and board) to $27,516, according to a report by the College Board.

For more information on the FAFSA form, go to www.fafsa.ed.gov. This Web site provides information about dates, eligibility and how to fill out the form.

Believe me, 2005 will start off right if you take the time to wrap up some financial matters before 2004 is over.

Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" program and online at www.npr.org. Readers can write to her at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071 or send an e-mail to singletarym@washpost.com. Comments and questions are welcome, but because of the volume of mail, personal responses are not always possible. Please note that comments or questions may be used in a future column, with the writer's name, unless a specific request to do otherwise is indicated.

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