2012 Closeout Checklist

We’re now in the home stretch for 2012. Less than 30 days to go! When December 1st arrives each year, the number of questions I receive triples as the pressure brought on by the end of the year deadline mounts. In the overwhelming majority of situations with our Relaxing Retirement members, if we’ve all been properly strategizing and implementing throughout the year, these year-end checklists simply serve to confirm what we’ve already done. However, we all lead a busy lives and managing your financial life isn’t always at the top of your list that you draw up each and every morning with your cup of coffee. Given that, if you haven’t already, here are some strategies to be thinking about and acting on before December 31st:

  • Required Minimum Distribution (RMD): If you’re age 70 ½ or older, you must start taking your RMD. Remember, the amount you must withdraw in calendar year 2012 is based on the combined value of all your qualified retirement plans as of December 31, 2011 (IRAs, SEPs, 401(k)s of ex-employers, etc.).

  • Capital Gains and Losses: Capital gains tax rates are going up for most in 2013. Even without a resolution on the looming “fiscal cliff” budget deal, the 3.8% surtax on investment income and capital gains associated with Obamacare will be in effect beginning in 2013.

    Given this, and the likelihood that capital gains tax rates will increase in general, you want to take a very close look at your unrealized capital gain or loss positioning in your Non-IRA accounts right now.

    Additionally, go back to Schedule D on your 2011 return and verify if you have any capital losses that you may have carried forward to 2012.

    Armed with this all of this information, you can make a fast, educated decision once a budget and capital gains tax rates are agreed upon for 2013.

    See my next Retirement Coach Strategy of the Week for specific recommendations no matter what Congress and the President do.

  • Negative Income: Take a close look at your 2011 income tax return. Make sure that your “taxable” income on page 2 of your 1040 is a positive number. And, if you have tax credits from Boston Capital or WNC, that number should be substantial so you can use your credits.

    As you’ve heard me mention numerous times in the past, I see this way too often, i.e. itemized deductions and personal exemptions that are higher than your taxable income. What this indicates is that you have the opportunity to receive more taxable income and still pay no federal income taxes.

    Where? Withdraw more taxable funds from your IRA that otherwise would have been taxable.

  • Roth IRA Conversion: Explore converting some (or possibly all) of your IRA to a Roth IRA, especially if you have “negative” income (see previous bullet). It gives you an opportunity to convert some or all of your IRA to a Roth with no federal income tax consequences. And, allow your money to continue to grow tax free for the rest of your life!

  • Retirement Plans at Work: If you’re still earning money from work, make sure you maximize contributions to your 401(k), 403(b), or 457 MA Deferred Compensation Plans if employed, or your Sep, Simple, Defined Benefit Plan, IRA, and/or Roth IRA if self employed. Every dollar you contribute comes off your taxable income column on your tax return.
  • Prescription Drug Plan: Open enrollment for Medicare Part D and Medicare Advantage is November 15th through December 31st. Don’t miss this opportunity to shop plans to best suit your health needs and your wallet.
  • Your Spending: So that you can continue to spend your money with confidence, take a look at what you spent in 2012 vs. what you predicted you’d spend. Is it more? Is it less?

    Remember, your goal is NOT to restrict your spending or to “budget”. It’s simply to “account” for what you’ve spent and be confident with your numbers.

    If I had to spell out one commonality amongst my most successful Relaxing Retirement Members, it’s that they all know their numbers and they can tell you exactly where they are.

    The reason they’re so financially confident, and in turn successful, is that they’re in control of their finances vs. the masses who are completely out of control and in constant reaction each day.

    They’re not locked up in a room studying investments and tax laws all day. Quite the opposite!

    They’re actually the ones who travel the most and have the most fun without being concerned about money. And, the reason they’re not concerned is they have a clear handle on what it costs for them to live exactly the way they want.

If you have any questions as to where you personally stand in relation to any of these, please don’t hesitate to call me. I look forward to helping you.

Stay tuned next week!


Committed To Your Relaxing Retirement,

Jack Phelps
The Retirement Coach

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