Your 2011 End of Year Checklist

Good Morning Relaxing Retirement Member,

As the end of 2011 rapidly approaches (tough to believe), questions are beginning to ramp up in relation to last minute year-end strategies to take advantage of before the clock strikes midnight on December 31st.

In 99.44% of the situations, 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, here are some strategies to be thinking about and acting on before the end of 2011 (if you haven’t already):

  • 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 2011 is based on the combined value of all your qualified retirement plans as of December 31, 2010 (IRAs, SEPs, 401(k)s of ex-employers, etc.).
  • Capital Gains and Losses: As we discussed in depth in my last Retirement Coach Strategy of the Week, it’s highly likely that you carried capital losses over from 2008 and 2009 that you may now use. Take a good look at your unrealized capital gain positioning in your Non-IRA accounts right now and determine if you’d like to lock in some gains on some of your funds with little or no capital gains tax consequences.
    As I recommended last week, go back to Schedule D on your 2010 return and verify the amount of capital losses you carried forward to 2011 and beyond. This will tell you how much capital gains you can now lock in without tax consequence because they’ll be offset by prior losses you carried forward.
    Additionally, if you’re in the 10% or 15% income tax bracket, your tax rate on capital gains is still zero! If you’re married and your taxable income is $68,000 or lower, or $34,000 or lower if you’re single, then you qualify.

  • Negative Income: Take a close look at your 2010 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, 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 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. (However, before you do, first confirm that you didn’t do a Roth conversion in 2010 and push half of the tax burden over to 2011 as you were able to do last year.)
  • Retirement Plans at Work: If you’re still employed, make sure you maximize contributions to your 401(k), 403(b), or 457 MA Deferred Compensation Plan. You may contribute a total of $22,000 in 2011. 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 remain confident in your numbers, take a look at what you spent in 2011 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”. 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 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.
    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.

    Committed To Your Relaxing Retirement,

    Jack Phelps

    The Retirement Coach

    P.S.: HELP spread the news! If you have a friend, family member, or co-worker who would enjoy receiving my Retirement Coach “Strategy of the Week”, please pass it on. Simply provide their name and email address to Or they can subscribe at our website!

    Thank you!

    P.S.: HELP spread the news! If you have a friend, family member, or co-worker who would enjoy receiving my Retirement Coach “Strategy of the Week”, please pass it on. Simply provide their name and email address to Or they can subscribe at our website!

    Thank you!