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This Week’s Financial Strategy – Tips for Year-End Financial Housecleaning

November 10, 2010

    An excerpt from Follow the Money Weekly Radio with Jerry Robinson – 11/06/10

    To hear the entire program, click here.

    by John Bearss


    Hi Jerry. It sure seems like this year has flown by, so I wanted to take some time and remind people of some important financial housekeeping items that they may want to attend to before the year is done.

    If you don’t normally review your investments at the end of each year, 2010 might be a good time to start. And if year-end investment planning is already part of your routine, you might want to pay special attention this year. Why? Because significant changes in the tax code that are scheduled to go into effect in 2011 could substantially alter the taxation of your portfolio next year. That could in turn affect your investment strategy. And since many expect additional changes that will affect next year’s tax landscape, it’s even more important than usual to think about whether your portfolio needs fine-tuning.

    First of all for those folks that are over the age of 70 ½ and own a Traditional IRA, don’t forget that you need to take your Required Minimum Distribution from your account before December 31st.  Some people have forgotten to take this because last year in 2009 the Federal government did not require people to take their RMD, but they restarted the requirement for year 2010.

    Secondly for those of you that own a Traditional IRA you still have until December 31st to convert some or all of your Traditional IRA to a ROTH IRA.  There are some advantages to doing this and the biggest advantage is that you can spread the tax consequences from doing this conversion out over the next two years.

    Thirdly, for those people who have not contributed to your Traditional IRA or ROTH IRA you may want to do some year end calculations to see how much you can contribute to these plans.

    Fourth, this is a great time of year to do a Tax Review especially for those retired folks that are receiving a Social Security Benefit Income.  Doing a tax review could very possibly help you next year get off on the right track to help you reduce or even possibly eliminate the taxes you pay on your Social Security Benefit Income and other investments that you receive a 1099.

    Fifth, if you plan to sell a profitable investment at some point, you’ll want to assess whether you should sell before the end of the year. That’s especially true if you’re in a low tax bracket or you have investments that have appreciated substantially. Investors in the 10% and 15% tax brackets currently owe no capital gains taxes on long-term capital gains. That is scheduled to change in 2011, when the long-term capital gains rate at this level is scheduled to increase from 0 to 10%. If you’re in the 25% bracket or higher this year, you’ll also need to think about this issue, though the scheduled increase from the current 15% to 20% isn’t quite as dramatic as the leap from 0 to 10% that those in the lower income brackets will face.  You can find the proposed changes at the website.

    In addition to staying on top of the tax issues that complicate this year’s investment planning efforts, there are some tasks that are useful every year. A portfolio review can tell you whether it’s time to adjust your holdings to maintain an appropriate asset allocation. Also, if you have losses, you may be able to harvest those losing positions to offset some or all of any capital gains. Be sure to consider how long you’ve owned the asset because assets held a year or less generate short-term capital gains and are taxed as ordinary income.

    If you’re selling an investment but intend to repurchase it later, be careful not to buy within 30 days before or after a sale of the same security. Doing so would constitute a violation of the “wash sale” rule, and the tax loss would be disallowed. There may be other issues to consider before you make changes to your portfolio.  So please sit down with your tax advisor to discuss this situation before you do anything.

    Finally, if you’re considering the purchase of a mutual fund outside of a tax-advantaged account, find out when the fund will distribute dividends or capital gains, and consider postponing action until after that date to avoid owing tax on that distribution.

    I trust this financial insight has been helpful and I look forward to the next time when I can help you provide the foundation for a lifetime of financial independence.

    About John Bearss: John R. Bearss is a Retirement Specialist with the Christian Financial Advisor Network. He has been helping clients and financial professionals understand financial strategies for 24 years.

    Disclaimer: John Bearss is a registered representative of and does offer securities through Sicor Securities, Inc.  Lifetime Decisions Management, nor it’s representatives provide legal or tax advice.  Please consult your CPA or qualified tax advisor before making any decisions. Lifetime Decisions Management, Inc. is not a subsidiary of nor controlled by SICOR Securities, Inc.

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