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Your Must-Do Year-End Financial Checkup

Year-end Financial Check-up


As you close the books on 2016, there are steps you should take to tie up loose ends and prep for the new year.

'Tis the season — for improving your finances. You can grow your nest egg, shrink your account management fees and recalibrate your investment risk — with a few smart end-of-year portfolio moves.

Get money and investment savings tips in the AARP Money Newsletter

Hike 401(k) contributions. Unless you're already maxing out your allowable 401(k) contributions for the year, now is the time to goose your retirement savings. Call your company plan — or better yet, log onto the website — and raise your contribution percentage for the year's remaining pay periods. "You can put as high a percentage as you want — as long as you stay within the maximum 2016 contribution of $24,000 for anyone over 50," says Christine Benz, director of personal finance at the independent investment research firm Morningstar. Readjust in January to whatever percentage you want for 2017.

Weigh Roth conversions. Moving money from traditional retirement accounts (which are taxable at disbursement) to Roth accounts (which aren't) means your savings could go a lot farther during retirement. Of course, you have to pay income tax on the money during the year of the conversion, and that's why the ideal time to do it for many people is immediately after retirement. "If you're delaying Social Security and you're not withdrawing significantly from your retirement accounts yet, your income is likely comparatively low," says Maria Bruno, senior investment strategist at Vanguard. "So you're taking the income tax hit at a relatively lower tax rate." Making the move over several years can ease the burden, too; you have until Dec. 31 to convert for the 2016 tax year.

See also: 5 Boomer tax traps to avoid

Manage RMDs. Starting the year after you turn 701/2, you must take required minimum distributions (RMDs) from your retirement account by the end of the calendar year (or face a 50 percent penalty). Your retirement company will help you determine how much you must withdraw (or use the worksheet at and will also allow you to automate the process. But you're better off taking a hands-on approach to RMDs, Benz says. "Pulling the money from whichever funds have grown the most means you're selling them at a highly appreciated value." And it helps to lower your portfolio risk since you're without doubt selling stocks, which are generally riskier than bonds and other assets. Thanks to a rule that Congress made permanent in 2015, you also have the option to do your charitable giving directly from your RMDs. "The money never comes to you as income, so you get a far better tax benefit than with a standard charitable write-off."

Rebalance and check asset allocation. When you get your end-of-year statements, take a good look at the investment array in your portfolio. Stock funds have outperformed bonds recently, so your initial allocation of, let's say, 50 percent stocks and 50 percent bonds may look more like 80/20 now. Rebalance to 50/50, and you're locking in those gains and moderating your risk for the next stock market correction. In fact, even that 50/50 original allocation (or whatever you chose) may no longer be appropriate. It all depends on your personal risk tolerance, but one conservative rule of thumb is to "put your age in bonds." In other words, if you're 68, 68 percent of your savings would be in bonds. At 90, 90 percent would be.

Combine accounts for lower fees and better service. You and your spouse may have accumulated 401(k)s, IRAs and other investments with a range of different investment houses. But since most investment fees are based on a sliding scale, it pays to combine your investments. For example, having at least $10,000 in a one index mutual fund may drop your costs for that fund in half. More importantly, having a critical mass of assets with a single low-fee company — $250,000, $500,000 or $1 million, depending on the company — will allow you to get free personalized financial planning. Can you trust the advice? Yes, Benz says. "They're not going to recommend another companies' mutual fund options, of course, but within their own offerings, you'll get good counsel."