Think about adjusting or timing your income and tax deductions. If you earn a lot of money and have the option of postponing a portion of the taxable income you will make in 2010 until 2011, this decision may bring you some tax savings. You might also consider accelerating payment of deductible expenses if you are close to the line on itemized deductions – another way to potentially save some bucks.
Think about putting more in your company’s retirement plan. You can contribute up to $16,500 to these accounts in 2010, with a $5,500 catch-up contribution if you are age 50 or older. Has your 2010 contribution approached the annual limit? There is still time to put more into your employer-sponsored retirement plan.1
Can you max out your IRA contribution at the start of 2011? If you can do it, do it early – the sooner you make your contribution, the more interest those assets will earn. And if you haven’t made your 2010 IRA contribution yet, you can still do so through April 15, 2011.1
The 2011 contribution limits on traditional and Roth IRAs are unchanged from 2010. You can contribute $5,000 to your IRA next year if you are age 49 and below, $6,000 if you are age 50 and above.2
If you are retired and older than 70½, don’t forget the 2010 RMD. As your IRA custodian has undoubtedly reminded you, the one-year suspension of Required Minimum Distributions has been lifted. Retirees over age 70½ must take RMDs from traditional IRAs – and 401(k)s – by December 31. Remember that the IRS penalty for failing to take an RMD equals 50% of the RMD amount.1,4
If you have turned or will turn 70½ at some point in 2010, you can choose to postpone your first IRA RMD until April 1, 2011. The downside of that is that you have to take two IRA RMDs next year – you have to make your 2010 tax year withdrawal by April 1, and your 2011 tax year withdrawal by December 31.1
You may wish to make a charitable gift before New Year’s Day. If you make a charitable contribution this year, you can claim the deduction on your 2010 return.
You could make December the “13th month”. Can you make a January mortgage payment in December, or make a lump sum payment on your mortgage balance? If you have a fixed-rate mortgage, a lump sum payment can reduce the home loan amount and the total interest paid on the loan by that much more.
Are you marrying next year, or do you know someone who is? The top of 2011 is a good time to review (and possibly change) beneficiaries to your 401(k) or 403(b) account, your IRA, your insurance policy and other assets. You may want to change beneficiaries in your will. It is also wise to take a look at your insurance coverage. If your last name is changing, you will need a new Social Security card. Lastly, assess your debts and the merits of your existing financial plans.
Are you returning from active duty? If so, go ahead and check the status of your credit, and the state of any tax and legal proceedings that might have been preempted by your orders. Review the status of your employee health insurance, and revoke any power of attorney you may have granted to another person.
Don’t delay – get it done. Talk with a qualified financial or tax professional today, so you can focus on being healthy and wealthy in the New Year.
This material was prepared by Peter Montoya Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information should not be construed as investment, tax or legal advice. The publisher is not engaged in rendering legal, accounting or other professional services. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. If assistance or further information is needed, the reader is advised to engage the services of a competent professional.
Neither Transamerica Financial Advisors, Inc. (TFA) nor its representatives provide legal, tax, nor accounting advice. Persons who provide such advice do so in a capacity other than as a registered representative of TFA.
1 money.usnews.com/money/retirement/articles/2010/10/18/5-retirement-tax-deadlines-to-plan-for.html [10/18/10]
2 irs.gov/retirement/article/0,,id=202510,00.html [11/1/10]
3 kiplinger.com/columns/ask/archive/2009/q1019.htm [10/19/09]
4 irs.gov/retirement/article/0,,id=96989,00.html#8 [11/10/10]
5 bankrate.com/finance/money-guides/no-taxes-due-for-some-investors-1.aspx [1/16/09]
6 ncpa.org/pub/2011-year-of-tax-man [7/19/10]