As 2006 is rapidly coming to a close, it’s worth a reminder to check on all your year-end planning… Here’s a bullet list of things to think about…

  • Are there any losses you have in taxable accounts that you’d want to realize for tax loss selling?
  • Have you contributed your max to retirement accounts to minimize taxable income?
  • Rebalance your portfolio if you do it once a year.
  • Pray that you don’t qualify for AMT.
  • Watch for the earnings distribution estimates from your mutual funds held in taxable accounts.

In addition to these, you’ll want to consider your usual tax activities too… pre-pay estimated taxes and/or property taxes before the end of the year; donate to charity; spend that HSA money; etc.

On the retirement accounts topic… the best way to invest for the long term is to limit the impact of taxes on your investments. You can strive for long-term capital gains, or choose a retirement account. This year’s maximums are different than 2005, and some change for 2007 as well…

  • 401(k) – $15,000 maximum in 2006 (it will be $15,500 in 2007)
  • $4,000 in a traditional or Roth IRA (stays at $4,000 for 2007) subject to many restrictions…

You technically have until April 15, 2007 to make a 2006 traditional or IRA contribution thanks to the fact that you need to know your final 2006 income to know if you have been “phased out“.

As for end-of-year mutual fund distributions… A few funds have had a good year, and will be paying large distributions — regardless of when you bought shares in the fund. This is a good thing to keep in mind if you’re considering buying some mutual funds in December — try to wait until after the capital gains are distributed!

For example, Oakmark Funds’ OAKIX fund will pay approximately $4.25 in dividends this year, which is nearly 15% of the current price! How would you like to buy today and then get hit with a 15% tax distribution before you’ve made any gains in your holdings? Ouch. That’s another reason to consider using ETFs instead of mutual funds.