Five Financial Gifts to Give Yourself Before Year-End
Leon C. LaBrecque, JD, CPA, CFP®, CFA
CEO, LJPR, LLC
1. Open a Roth IRA (if you don’t already have one):
Roth IRAs are tax-free and not subject to Required Minimum Distributions. You need to have a Roth account established by the end of the year. You have until April 18th, 2011 to establish your account and make your 2010 contribution. You can contribute $5,000 if you are under age 50 and $6,000 if you are 50 or older. Contact us if you want us to set up a Roth for you and your spouse, or even for working children.
2. Make your §529 contributions or open a 529 for your kid(s) and/or grandkids:
A §529 plan is a tax-free college savings program. The Michigan 529 plan, or Michigan Education Savings Program, has an additional feature of allowing you to make a contribution that’s deductible on your Michigan Income taxes. With the MESP, the first $10,000 (joint filers) or $5,000 (single filers) in contributions can be deducted from income on your Michigan tax return. If you make your contributions before the end of 2010 you get that benefit when you file your 2010 Michigan return.
3. Make your charitable donations:
Clean the house. Empty your closets, kitchen, basement, garage, etc. and get rid of the stuff you don’t use anymore. Get a receipt from the charity and deduct it as a non-cash donation. You can use a nifty program call “ItsDeductible” to value the donation.
If you regularly make cash donations, look at donating appreciated stock from an after-tax account. You will be able to take the deduction on your tax return and you won’t have to pay the tax on the gain. Example: you normally give your college $2,000 as a gift, you could give $2,000 of appreciated stock (say you bought Ford at $4, and now it’s at $16), and get the full deduction and avoid the capital gains.
4. Do a Roth conversion:
In addition to contributing to a Roth, you can convert existing IRAs to a Roth. You pay tax on the converted amount now but all subsequent income and gains are tax free. What’s more, Roth IRA’s are not subject to required minimum distributions. If you convert to a Roth in 2010, you may split the income on the conversion over 2011 and 2012 or report all the income in 2010. We’ve written a White Paper on Roth conversions. However, to get the clock ticking, you need to make the conversion before 12/31/2010. And don’t worry if you change your mind, you can recharacterize a Roth conversion up to 10/17/2011 if you file an extension or filed a timely return. No harm, no foul.
5. Check your estate plan:
Did you buy a second house in 2010? You might need to set up a trust (particularly if it is out of state) or at the very least deed it to your heirs to keep it out of probate.
Did you have another child? Documents should be updated for that. If you had your first child, a Will definitely needs to be set up to name a guardian, as well as establishing a guardian in your Power of Attorney.
Haven’t looked at your Health Care Power since 2006? HIPAA requires certain language in your Heath Care Power of Attorney.
Did you receive an inheritance? Make sure the accounts are titled correctly so they meet your estate planning goals. While you’re at it check your beneficiary designations on your IRAs, 401(k)s and other assets.
There you have it. Five tips for saving you and your family time and money for 2010. If you need help, contact us at LJPR: email@example.com. Leon’s e-mail is firstname.lastname@example.org . Our phone is 248-641-7400.
Leon C. LaBrecque, JD, CPA, CFP CFA, is the managing partner and founder of LJPR, LLC, an independent advisory firm managing about $400 million in assets. LJPR has provided integrated, comprehensive financial advisory services to thousands of people for over two decades. Leon is a practicing attorney who specializes in financial planning, estate planning, business and tax planning for individual and business clients. IRS CIRCULAR 230 DISCLOSURE REQUIREMENT: IRS Circular 230 requires us to notify you that any tax advice contained in this communication (including attachments) is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding tax penalties that may be imposed by law.