There’s still time—take action on these seven tips before December 31

The holiday season is here, and your list of chores and obligations is lengthy.  Be sure to make time, however, to review the tips below with your financial advisor before you ring in the New Year.  You have until December 31 to take the following actions: 

  1. Ask your financial advisor about the benefits of tax loss harvesting for your portfolio.    Sit down with your financial advisor to review your 2011 transactions to see what losses you can take before December 31 to offset any gains you’ve realized, both short and long.  “By using tax-loss harvesting, you can greatly reduce your tax liability,” says David M. Hill, Financial Advisor at Brinton Eaton, a national wealth advisory firm in Madison, New Jersey.  “It can also be an effective way to boost your after-tax stock returns.”   
  2. Make gifts to your beneficiaries.    The federal government permits you to gift up to $13,000 per individual, in 2011, to multiple beneficiaries without having to pay gift or estate tax.  If you are married and you elect gift splitting, you can jointly gift $26,000. The gift needs to be made available for the donee’s immediate use, possession, and enjoyment by December 31 in order for it to qualify — and for you to reap the tax benefit.  “By contributing the maximum annually, you can transfer a significant amount of money, over time, out of your estate, says Abigail M. Rosen, Brinton Eaton Financial Advisor.  “If you are a high-net-worth individual, this could be especially beneficial in light of the fact that if Congress does not intervene, estate and gift tax rates will revert back to a hefty maximum of 55% on January 1, 2013.” 
  3. Attention business owners:   Establish a Defined Contribution Plan for your employees.   Over the past several years, the trend has been for companies to establish defined contribution plans — instead of more expensive defined benefit plans — to help fund their employees’ retirement.  These defined contribution plans include 401(k) s, 403(b)s, and employee stock ownership plans,  among others.  If you create a defined contribution plan for your employees by December 31, you—as well as your employees — can begin contributing to it with your first 2012 paycheck. 
  4. Complete and submit the paperwork for your year-end required minimum distributions (RMDs) from your Individual Retirement Accounts and qualified retirement plans.  If you are age 70 ½ or older and RMDs are required by year end, don’t wait until the last minute to submit your paperwork in order to receive your RMD.  If you miss the deadline of December 31 there is a penalty.  The U.S. government could claim 50% of your missed
    distribution.  Consider establishing standing instructions with your bank or financial advisor, saving you the trouble of having to initiate the process anew every year. 
  5. Take advantage of increases in deferral election amounts.  Beginning in 2012, an increase in deferral elections is going into effect for 401(k), 403(b), and Profit Sharing Plans.  The compensation limit has been boosted from
    $245,000 to $250,000 and a participant’s total pretax elective annual deferral has been upped from $16,500 to $17,000. Your overall contributions, including what you have kicked in (both pretax and after-tax), your employer match, and plan forfeitures, have been increased to $50,000 from $49,000. Note that there is no change to the age 50 and older catch-up contribution limits to 401(k) and 403(b) accounts.  The more you contribute the more tax-deferred savings you’ll accumulate for retirement. 
  6. Discuss your itemized deductions with your tax advisor.  Determine if accelerating state income tax and property tax payments or making additional charitable contributions makes sense in terms of decreasing your 2011 tax liability.  There may be no tax benefit to prepaying certain deductions if you are subject to the Alternative Minimum Tax, so check with your tax advisor first.  
  7. Evaluate your current financial plan (and advisor).  The end of the year is always a good time to reassess your financial plan as well as those you trust to invest and manage your assets.  Some questions to ask yourself:  Does your financial plan meet your current life goals?   Has there been a significant change in your status, e.g., a birth, death, divorce, job change, etc. that is not adequately reflected? Does your current financial advisor still fit the bill?  Says Hill, “Even if you are happy with your current advisor, it doesn’t hurt to get a second opinion about your overall financial situation, especially in today’s environment.  Two important qualities to consider are his objectivity and how well he’s kept your portfolio insulated from this year’s market volatility.”  To learn more read. Finding the Right Financial Advisor for You! at www.brintoneaton.com/review .