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Year-end financial planning, with Ask the Experts' Beverly Bailey

We’re well into this year’s extended holiday spending season, and hopefully you are sticking to your plan. Of course, there are other financial issues that we need to take care of before Dec. 31.

IRA distributions

First on the list are required minimum distributions. If you are over 70 1/2, you need withdraw a portion of your Traditional IRA balance by the end of the year. Roth IRAs do not require a distribution.

The direct to charity rules have changed for 2012. You can still ask the custodian to make the check payable to the charity, but you will have to report the income and the contribution on your tax return.

If you turned 70 1/2 this year, you may not have to take a distribution until 2013. But that means two taxable distributions next year, so check with your tax adviser to see if you should defer the first distribution or go ahead and take it now.

In 2012, each individual can gift $13,000 to another without triggering tax problems. Consult your tax adviser to see if gifting might benefit your estate planning.

Tax loss selling

With the ups and downs in the market this year, you may be holding taxable investments that you like but are selling at a loss. If you sell them before year-end and then re-buy in 2012 (avoid the wash sale rule) you may benefit from taking the loss this year.

I am not a tax adviser, but I know there are certain tax rules that affect my clients every year. As usual, I can’t address any specific situation, but I can refer callers to a tax adviser.

Year-end review

Year-end is a good time to review your complete financial situation. Do a personal income statement: How much did you make, and how much did you spend? Combined with a personal balance sheet, you can see if you were successful with paying down debt or increasing your savings. (Or vice versa: Do you have new debt to pay off? Did you fail to meet your savings goals?) Set new goals for next year. Also review all of your investments. Because you are another year closer to each goal, are your allocations appropriate? Are you going to need cash for a large expenditure this year? Is this in cash or do you need to sell something?

Also based on the global economic outlook for next year, do you need to reallocate your portfolio? This is works hand in hand with the tax loss selling mentioned before.

Securities offered through LPL Financial. Member FINRA/SIPC.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax adviser.

Ask the Expert

Beverly Bailey is principal of Chamisa Financial, a full service financial firm. She has been a registered representative since 1995 and a Certified Financial Planner™ since 2009. She focuses on retirement planning and asset allocation.

Ask her a question in the comments field below, or contact her at 505.856.9237 or beverly.bailey@lpl.com.

Securities offered through LPL Financial. Member FINRA/SIPC.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

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This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

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