Things you can do before the end of 2010 and for the New Year!
As you approach the end of the year it is a good time to review your financial situation and consider the following as you wind down 2010 and prepare for 2011. Establish goals you would like to accomplish such as consistent investing and saving or budgeting methods that will help you reach these goals. You should also consider the following:
Think about adjusting or timing your income and tax deductions – Can you postpone a portion of your taxable income earned in 2010 to 2011?
Think about putting more in your 401(k) or 403(b) – You can contribute up to $16,500.00 to these accounts in 2010, with a $5500.00 catch-up contribution if you are 50 years or older.
Can you max out your IRA contribution at the start of 2011 –The sooner you make the deposit, the sooner those assets can work for you and if you haven’t made your 2010 contribution yet you are still able to do this until April 15, 2011. The contribution limits are the same as 2010. You can contribute $5,000.00 to your IRA in 2011 if you are 49 and below and $6,000.00 if you are 50 years or older.
Consider a Roth IRA conversion before the end or 2010 – there are no longer any income limits. If you decide on a Roth conversion before the end of 2010 you can divide the taxes on the conversion between your 2011 and 2012 federal tax returns. This opportunity will not be available if you make your Roth conversion in 2011.
Whatever you do you should consult a tax or financial professional before you make any IRA changes. You want to see how it may affect your overall financial picture. You may run into tax consequences if you own multiple traditional Individual Retirement Accounts.
If you are retired and 70 ½ years old or older, don’t forget the 2010 Required Minimum Distribution (RMD) – the one year suspension of RMD’s has ended. Retirees over 70 ½ must take an RMD from traditional IRAs and 401(k)s by December 31. Don’t forget the IRS penalty for not taking this distribution equals 50% of the RMD amount.
Stay abreast on what happens with income, estate taxes and capital gains – Congress is set to extend the present law and as of this blog it appears that that has occurred. If for some reason that does not occur here are the implications:
- Tax rates on long term capital gains will go from 0% to 10% in 2011 for those in the 10% and 15% tax brackets. If you are in a higher tax bracket you will see capital gains tax rates rise 5% in 2011 to 20%.
- Dividends are scheduled to be taxed at marginal income rates of 39.6%.
- Income taxes are poised to return to previous levels in 2011, with the lowest bracket set at 15% and the highest bracket set at 39.6%. The marriage penalty will also return. Most Congressmen will not want this on their legacy so it is a safe bet that the extension of the Bush-era tax cuts will go through.
- Estate taxes will most likely return in 2011. It is hoped that Congress will prevent them from returning at the levels of 2001 – a 1 million exemption and a 55% top tax rate.
You may wish to consider a charitable gift before the end of the year – If you make the contribution this year you can claim the deduction on your 2010 return.
Make December the “13th month” – Are you able to make your January mortgage payment in December or make a lump sum payment on your mortgage balance? If you have a fixed rate mortgage a lump sum payment can reduce the home loan amount and the total interest paid on the loan by that much more. When you pay down debt it is almost like getting a risk-free loan.
Are you getting married next year or do you know of someone who is? - The beginning of 2011 is a good time to review and change beneficiaries on your 401(k) or 403(b) account(s), your IRA, insurance policies and other assets. You should also review your will to make sure the beneficiaries are as you want them. If you don’t have a will the beginning of the year is a good time to have this completed. If your name will be changing you will need to notify all parties of this fact. Don’t forget about your Social Security card.
Are you returning from active duty? – If this is the case check the status of your credit and the state of any tax and legal proceedings that might have been preempted by your deployment. Review your health coverage and don’t forget to revoke any power of attorney you granted to another person.
Don’t delay! Start the year by talking with a qualified finance or tax professional so that you can focus on being healthy, wealthy and wise in 2011. A good rule to follow – GET IT DONE!!
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Ray Amelio is Managing Director and Chief Marketing Officer at Fragasso Financial Advisors, a Pittsburgh-based investment and financial planning firm. Due to industry regulations, comments are not permitted on this blog. If you would like to contact the author, please email us at blog@fragassoadvisors.com. Ray can also be reached for comment at 412-227-3200.