November 30, 2012

Hopefully everyone had a great Thanksgiving.  We certainly did and, as expected, ate way more that we should have!   With the end of the year quickly approaching, we thought we would share some planning strategies you may want to begin thinking about as we close down 2012. From investment planning to tax planning, the end of the year is always a great time to put the ‘finishing touches’ on making sure your financial house is in order.

Obviously each of the strategies needs to make sense for your specific situation, but each one of these is a strategy we are investigating with our wealth management clients.

As you listen to today’s show, listen out for some of the following:

  • Loss Harvesting – For investments that have an unrealized loss, you can sell them, recognize the loss, and purchase another (similar, but not exactly the same) investment. Make sure you do not trigger a “wash sale” and disallow the loss. These harvested losses can offset current year gains, potentially offset current income, and can even be carried forward into future tax years.
  • Roth conversion – You have the ability to create tax-free money through a Roth conversion.  If you are in the 15% tax bracket, which ends right around $70,700 for those who file jointly, it may be a good idea to maximize this historically low bracket.  Depending on your state, there may even be additional savings available by utilizing a conversion.
  • Project Capital Gains Distributions –You might be able to strategically miss a fund’s year-end capital gains distribution. This can be significant if you have a holding that has had a nice run up over the past few years, but has not yet passed the capital gains on to shareholders.    Remember that ETFs may make sense to purchase at year-end in order to avoid capital gain distributions.
  • Tax Bracket Maxing – We do not know where tax rates are going, but we do know that they are at historically low levels.  If you have the flexibility and you think rates may be increasing, you might want to max out your tax bracket at these low levels.
  • Retirement Plan Max Out – This is probably the number one best way to shelter income from taxation.  Review your 2012 contributions and make sure you are on track to max out your qualified retirement plans is that is part of your financial plan.
  • 2012 Income Acceleration – Depending on which way the Fiscal Cliff discussions go, it may be advantageous to accelerate income into 2012.
  • Asset Musical Chairs – If you have a fund with a healthy dividend yield in a taxable account, it may make sense to sell that fund now and repurchase it later in a qualified tax-deferred account  (This is, of course, most advantageous if  you believe dividend tax rates will return to ordinary income rates).
  • Gifting Strategies – Charitable Gift Funds are a great way to control your giving distributions (we like the Fidelity Charitable Gift Fund).  You get to choose how the money is invested and distributed.  Be aware, however, that this is an irrevocable gift.  You cannot get the money back out once it is in a gift fund. A great benefit is the ability to gift appreciated assets.  When you donate appreciated assets, you receive a tax deduction, and you get to avoid capital gains taxation.  If you are making a non-charitable gift, remember you can give $13,000 per person in 2012 without having to file a gift tax return.
  • Net Worth Statement – Start to gather your data now.  This data is important to help family members should anything happen to you.  The Premium section of our website includes a template to help you design this document.

Start your planning and make the changes you need now.  Take the time to look at your personal finances and decide what needs to be done before the end of the year.  Finally, as you continue (or begin) your holiday shopping, don’t forget to take advantage of the FREE money you can get from Ebates.com.




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