If you remember just a few financial housekeeping tips before we ring in the New Year, you could help ensure clients are in shape for tax time and beyond, according to wealth management firm LJPR LLC.
The tips provided by the firm include taking advantage of some deadline-driven advantages set to expire in the upcoming year, especially with Roth IRAs, as well as long-term estate and education planning.
The firm poses the ideas as market indicators show essential signs of growth in 2011, said LJPR founder and Managing Partner Leon LaBrecque. “It looks like things are starting to brighten up,” LaBrecque said. “Let’s fix the house and move on.”
First, investors should consider opening a Roth IRA, which are tax free and not subject to minimum distributions. Investors have until April 18 to establish the account and make their contributions for 2010. Investors can contribute up to $5,000 if they are under 50-years-old and $6,000 at ages 50 and above.
In addition, existing IRAs can be converted to a Roth IRA, where an investor will pay tax on a converted amount but not on future income. This tip is especially important to keep in mind, LaBrecque said, as investors can split the income of that conversion over two years, spreading those claims over 2011 and 2012 returns.
Other areas to think about are always good financial housekeeping, LaBrecque said, including estate planning. Because many health care providers now require Health Insurance Portability and Accountability Act (HIPAA) forms in order to recognize power of attorney, investors should update those documents if they have not since 2006.
Other estate planning areas to consider include setting up a new trust or deed after purchasing a second home and naming a guardian in a will and power of attorney with the birth of a child. Because about half of the states allow investors to deduct contributions to 529 plans devoted to education, it’s important to also consider opening this kind of account. “A lot of parents and grandparents are looking at children’s’ education,” LaBrecque said. “Having some funding set aside on a tax-free bases just makes sense.”
And as we ring in the new, it’s also important to get rid of the old, which can include unwanted items lying around the house. Getting a receipt from a charity for donated goods counts toward a deduction for a non-cash donation. Investors may also consider donating appreciated stock from an after-tax account instead of cash, which would result in taking a deduction rather than paying a tax on its gain.