Ask the Fool

Beef Up Your Insurance

Q. What’s umbrella insurance? — F.W., Mansfield, Ohio

A. It exists to keep you from getting soaked financially. It offers coverage exceeding the limits of the policies covering your house or apartment, car and more. Umbrella policies can pay for any property damage and personal injury you’re found responsible for causing. Policies also cover losses not typically paid for by standard insurance, such as coverage for rental units, or coverage if you’re sued for slandering or libeling someone. Imagine a scenario in which you’re sued and end up ordered to pay $1 million. Your regular insurance policy won’t offer anything close to that, but an umbrella policy can. Umbrella insurance won’t cost you a lot, either: A $1 million umbrella insurance policy often costs around $100 to $350 annually.

Q. I’m thinking of selling two stocks I own. One doesn’t pay a dividend, and the other hasn’t grown much in the past few years. Should I just move that money into CDs? — G.V., online

A. If you no longer have faith in the long-term growth potential of either stock, do sell. But don’t sell any holding just because it pays little or no dividend. There are two main ways to make money in stocks: dividends and stock-price appreciation. A company may pay no dividend (perhaps because it’s still trying to grow rapidly and is investing any available cash back into the business), but if it’s executing its strategies successfully, its stock price might increase substantially over time, rewarding shareholders. Some of the best stocks will offer both growing dividends and stock-price growth.

Certificates of deposit are fine for short-term savings, but with interest rates so low these days, they aren’t that great as long-term investments.

Fool’s School

Smart Year-End Tax Moves

As the end of the year approaches, look into what smart tax moves you can make. For example, donate cash, stocks or other assets to charities, especially if you plan to itemize your deductions. Also:

— Review your investment portfolio’s winners and losers. If you’ve sold some holdings and have substantial capital gains on which you’ll be taxed, you might want to sell some underwater stocks for a loss to offset some or all of those gains. (Don’t buy that stock back until after 30 days pass, though, for the loss to count.)

¯ Spend any funds in a Flexible Spending Account (FSA) on qualifying expenses, as that’s use-it-or-lose-it money. Some employers may give you an extra 2 1/2 months to spend it, and some may let you roll over up to $500 to the following year.

¯ Contribute to an IRA (and/or your employer-sponsored retirement plan such as a 401(k)) if you haven’t done so yet. The maximum 2018 IRA contribution is $5,500 (plus $1,000 if you’re 50 or older), and it’s $18,500 (plus $6,000) for 401(k)s. The earlier in the year you do so, the longer your contributions will have to grow. (Learn more about these plans at fool.com/retirement.)

¯ Plan to grab any available tax credits. If your income is low enough and you’re contributing to retirement plans, you may be eligible for the Saver’s Credit, worth up to $1,000 for a single person and $2,000 for couples. If you pay someone to care for your child under age 13 so that you can work, you might be eligible for the Child and Dependent Care Credit. The Child Tax Credit offers $2,000 per qualifying child under the age of 17. The American Opportunity Tax Credit offers savings of up to $2,500 per eligible student for qualified tuition and fees paid by or for the student, while the Lifetime Learning Credit offers up to $2,000. If you’ve recently adopted a child, you may be able to enjoy a credit of up to $13,840. There are many other credits to explore.

For more information, visit irs.gov and usa.gov/taxes.

EDITOR’S NOTE: The Motley Fool is an investment column created by brothers David and Tom Gardner and distributed by Andrews McMeel Syndication.