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December 7, 2011

Here's your year-end investment checklist

As an investor, you've pretty much seen it all in 2011 — including slow-but-steady gains early in the year, a market correction during the debt ceiling debate and the U.S. credit downgrade, and huge one-day price movements, both up and down — and there's still a month to go.

Despite the volatility of the past 11 months, you can make some positive year-end investment moves, including the following:

Boost your 401(k) contributions. If your employer permits you to make extra contributions to your 401(k), put in as much as you can afford, up to contribution limits. You typically contribute pretax dollars, so the more you invest, the lower your taxable income. Plus, your earnings have the potential to grow on a tax-deferred basis.

Consider converting to a Roth IRA. You might benefit by converting a traditional Individual Retirement Account (IRA), which offers tax-deferred earnings, to a Roth IRA, whose earnings grow tax free, providing you don't start taking withdrawals until you're at least age 59¬ and you've held your account for five years. Keep in mind, though, that you'd need the money available to pay the taxes that would be due on such a conversion. Also, income limits apply to Roth IRA contributions. This is a complex decision that you should discuss with your qualified tax professional.

Set up automatic contributions for 2012. Like most people, you may find it difficult to come up with a lump-sum payment to fully fund your IRA for the year. Why not set up an automatic investment plan for 2012? By directing your bank to transfer the same amount each month from your checking or savings account to your IRA, you'll find it easier to "max out" on your IRA — and, at the same time, you'll boost your investment discipline.

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