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Make the best of a bad economy
Gerri Willis gives tips on how to get the most out of your money in tough times.
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| For more information on managing your largest investment, check out Gerri Willis' "Home Rich," now in bookstores. |
NEW YORK (CNNMoney.com) -- The news on the economic front is grim. But there are strategies you can do now to help make the best out of a bad year.
Think twice before investing in mutual funds outside your retirement accounts this month. That's because you can get hit with a hefty tax bill.
This is the time of year mutual fund managers pass along their capital gains tax obligations - and this year promises to be a lulu.
That's because small investors have been selling mutual funds all year long, forcing mutual fund managers to sell holdings to pay them back.
Fund managers sell holding they may have had for a long time, creating a gain - the tax bill is passed along to you even though you just bought the fund.
If you're considering investing in a fund this month, make sure you call the fund or check its web site to see if it's planning to make a year-end distribution says Doug Flynn of Flynn Zito Capital Management.
And make sure you invest after that distribution date so you're not hit with those taxes.
If you've had massive losses outside your retirement account this year, there is a silver lining. You can use your losses to offset capital gains you may have had this year.
If your capital losses are bigger than your gains - or even if you don't have any gains at all - you typically can deduct as much as $3,000 of net losses from your wages on your tax form.
Additional losses get carried over to your tax return in future years and that can mean savings for years to come.
This year is a good year to convert your traditional IRA to a Roth IRA. That's because the value of your traditional IRA is probably lower now, so you'll pay less in taxes on the amount you convert. But there's a catch.
You have to make sure that you can pay for the tax hit out of your savings account. You don't want to pay the tax out of your retirement money. It will erase any gains you've made.
To give you an idea of what you may be on the hook for: if you convert $20,000 from a Traditional IRA to a Roth IRA, you may be on the hook for $6,000 to $8,000. Keep in mind there are income limitations associated with Roth IRA contributions.
This year if you make less than $101,000 in adjusted gross income, you can make a full contribution. After that, your ability to contribute is phased out.
Now is the time to start mining through your shoeboxes. Collect all those receipts from charitable donations you've made this year. You can also document your donations by looking for those cancelled checks or look for any letters or e-mails from the charity. 
