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Healthy, Weathy and Wise in the New Year

Healthy, Weathy and Wise in the New Year

Financial To-Dos for a Bright Start

What are your financial, business or life priorities for 2012? Define your goals and map out how to realize them. The end of the year is a good time to review personal finances and consider these year-end moves.

Adjust or time your income and tax deductions. If you earn a lot of money and can postpone a portion of your 2011 taxable income until 2012, this may bring you some tax savings. For potential tax savings, consider, too, accelerating payment of deductible expenses if you are close to the line on itemized deductions.

Put more in your 401(k) or 403(b). The IRS hasn’t announced the contribution limit for 2012. Given moderate inflation, we might see the annual limit rise to $17,000 from today’s $16,500. In 2011, you can contribute up to $16,500 per year to these accounts with a $5,500 catch-up contribution also permitted for those 50 or older.

Can you max out your IRA contribution at the start of 2012? The sooner you make your contribution, the more interest those assets will earn. If 2011 traditional and Roth IRA contribution limits don’t rise in 2012, you will be able to contribute up to $5,000 to your IRA if you are age 49 or younger, and up to $6,000 if you are age 50 and older.

Should you go Roth between now and the end of 2012? While you can no longer divide the income from a Roth IRA conversion across two years of federal tax returns, converting a traditional IRA into a Roth before 2013 may make sense for another reason: Federal taxes might be higher in 2013.

Some Modified Adjusted Gross Income (MAGI) phaseout limits affect Roth IRA contributions. If the phaseout limits aren’t adjusted north for 2012, phaseouts will kick in at $169,000 for joint filers and $107,000 for single filers. Should your MAGI exceed those limits, you still have a chance to contribute to a traditional IRA in 2012 and then roll those IRA assets over into a Roth. But be sure to consult a tax or financial professional before you make any IRA moves to determine how this may affect your overall financial picture.

If you are retired and older than 70½, don’t forget Required Minimum Distributions (RMDs). Retirees over age 70½ must take RMDs from traditional IRAs and 401(k)s by Dec. 31, 2012. Remember that the IRS penalty for failing to take an RMD equals 50 percent of the RMD amount.

If you have turned or will turn 70½ in 2011, you can postpone your first IRA RMD until April 1, 2012. The downside is that you will have to take two IRA RMDs next year, which are both taxable events.

Plan your RMDs wisely. If you do so, you may limit or avoid possible taxes on your Social Security income. Under the “provisional income” rule, if your modified Adjusted Gross Income (AGI) plus 50 percent of your Social Security benefits surpasses a certain level, then a portion of your Social Security benefits become taxable.

Consider the tax impact of any 2011 transactions. Did you sell any real property this year, or do you plan to do so before year-end? Did you start a business? Are you thinking about exercising a stock option? Could any large commissions or bonuses come your way before the end of the year? Did you sell an investment that was held outside of a tax-deferred account? Any of these moves might have a big impact on your taxes.

Make a charitable gift before New Year’s Day and claim the deduction on your 2011 return.

Are you marrying next year? Review beneficiaries to your 401(k) or 403(b) account, your IRA, your insurance policy and other assets at the top of 2012. You may want to change beneficiaries in your will and take a look at your insurance coverage. If your last name changes, you need a new Social Security card. Lastly, assess your debts and the merits of your existing financial plans.

Clark Kendall is the only professional world-wide with Chartered Financial Analyst (CFA), Certified Financial Planner TM (CFP®) and Accredited Estate Planner (AEP) designations. Clark was just named one of the Washington Metropolitan Area’s Top Wealth Managers by the National Association of Board Certified Advisory Practices. Clark is also a former equity seat holder on the New York Stock Exchange (NYSE). Clark is focused on providing intelligent, independent, financial direction to individuals and families located in Montgomery County. He may be reached at or 301-838-9110.

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