Taking a few moments now to assess your financial situation can go a long way toward positioning you for success next year. Some items to consider:
If Retired
- Have you taken any required minimum distributions from your IRAs for this year?
- Even if no IRA distributions are required, have you taken out at least enough to use up all of your deductions and exemptions or fill up the lower tax brackets? If uncertain, a tax projection before year-end can be an excellent investment.
- Social security benefits increase by 3.6%. Making a conscious decision on how to utilize these funds can help you get the most out of them.
If Still Working
- The 2% payroll tax reduction expires at the end of 2011 unless it’s renewed (had not been renewed as of this writing on Nov. 29), so plan for a 2% reduction in your take-home pay beginning the first paycheck of the year.
- The social security tax earning caps for next year is $110,100. If you normally exceed this maximum, make plans for how to allocate this additional income when you exceed it next year.
- You can contribute a maximum of $17,000 to a 401(k) or 403(b) next year, plus a $5,500 catch-up if you turn 50 or older anytime in 2012. Review your contribution rates to save as much as possible. Consider Roth contributions if an option for you.
For everyone
- Review taxable investment accounts for opportunities to harvest losses if appropriate. This can reduce your tax bill due in April.
- Review your broker’s default cost basis reporting method. Brokers will be reporting more cost basis information to the IRS beginning next year, and you can elect which cost basis reporting method is used if you act before any investment sale settles. You won’t be able to wait until to file your tax return to make this decision in many situations.
- Last, but definitely not least: if you do not have estate planning documents in place, no matter what your age, please take the time to do so now before the end of the year. None of us know how many days we have on this earth, and having these documents in place can help make a difficult time a little bit easier for our loved ones.