Financial Perspectives: Still time for year-end planning

2011 seemed to fly by and if you did not do any planning this year, it is not too late. Some of the opportunities are related to taxes, while others are more retirement estate planning oriented.

I usually counsel folks that if they are going to do anything, it is really important that they make their 401k and/or IRA contributions. For many, it may make sense to make Roth IRA contributions, as these contributions will grow tax free into the future – and any distributions will be completely tax free. The benefit of making these contributions will be significant over time and this money will be their primary means of support in retirement. Roth IRAs are good in another way, as well. If you have any 401ks from prior employers or traditional IRAs, you can convert them into Roth IRAs. You will have to pay the taxes on these conversions in the year that you do the conversion, but the long-term benefits can be immense. The reason is that it is very likely that tax rates will have to be higher in the future and you will pay taxes now at today’s lower rates. This planning technique makes sense the longer you have until retirement. In my experience, you generally need to be at least 13 to 15 years from needing to spend from this pool of money.

Another more typical tax planning opportunity is tax loss harvesting. Here you evaluate your investment accounts to find positions where you may have a loss that you can use to offset gains in other positions. This exercise can result in the elimination of a significant portion of your capital gains.

This is also a great time to review the beneficiary designations on your investment and retirement accounts. If you have listed your “Estate” as the beneficiary, I urge you to consider naming a specific individual(s) or a charity as your beneficiary. The reason this is a concern is that your assets would have to pass through probate if you were to pass away. This adds additional cost and can complicate the process of settling your estate.

Even worse, many people do not have wills, and if you die without a will, your assets will pass to your heirs according to a formula established by the state. In this instance, your money could potentially go to people you did not intend.

Finally, if you have not done so, please consider getting a will, power of attorney and a living will completed as soon as possible. This is important for all adults, single and married alike. The will makes certain your assets pass to the heirs you designate.

A power of attorney gives someone the ability to act on your behalf to make legal and health care decisions. A living will states what your wishes would be for life sustaining care should you suffer some irreversible and life threatening injury or terminal illness. There are several attorneys around the Northeast who can draft these documents at a very reasonable cost. No one likes to think about their own mortality, but you can save your family or friends an immense amount of trouble by taking care of this now.

Jim Heisler is a Certified Financial Planner with Family Wealth Services in Holmesburg. You can read all his Financial Perspective columns here.

Registered Representative, Securities offered through Cambridge Investment Research, Inc., A Broker/Dealer, Member FINRA/SIPC and Investment Advisor Representative, Cambridge Investment Research Advisors, Inc. a Registered Investment Advisor.  Family Wealth Services, LLC and Cambridge are not affiliated.

Jim Heisler, CFP®, CDFA™, CASL™ Family Wealth Services, LLC is located at 8275 Frankford Ave. (215-332-4968)

The views expressed are not necessarily those of Cambridge and should not be construed as an offer to buy or sell any security. These situations are hypothetical in nature and do not represent a specific client.