The final quarter may be the busiest time for financial planning as clients focus on preparing for 2013. This year in particular has presented many challenges for clients as they try to grow and protect assets in the face of uncertainty around taxes and fiscal policy.
Some key end-of-year strategies for consideration include:
- Contact clients to discuss the benefit of converting to a Roth IRA in 2012. While most clients understand that a Roth IRA can provide tax-free withdrawals in retirement with no required minimum distributions, they may not be aware of the significant tax advantages that exist in 2012. With uncertainty around tax reform, your clients could be in higher personal income tax brackets in 2013. Also, with anticipated federal budget deficits and concerns about the strength of entitlement programs like Social Security, tax rates may be even higher in the future. Now may be an opportune time to convert and create a source of tax-free income in retirement. Understand more about the tax advantages of a Roth conversion in “Converting a Traditional IRA to a Roth IRA.”
- Review required minimum distributions (RMDs) with clients. Many investors typically request minimum distributions from retirement accounts in December, making the coming weeks a good time to contact clients to make sure they are on track. There are penalties for not taking the RMDs as scheduled. Learn more in “What you need to know about required IRA withdrawals.”
- Explore the feasibility of accelerating tax deductions with affluent clients. Many higher-income taxpayers may not be aware that there are no income phaseouts on claiming itemized deductions while filing tax returns for 2012. Consider urging affluent clients to talk to their tax professionals about accelerating tax deductions into 2012 if possible.
- Talk to small business owners about transforming losses into tax-free income. Small-business owners who will record a net operating loss (NOL) this year may be able to use it to their advantage. NOLs may be carried forward to offset ordinary income on future tax returns. These NOLs can also be used to offset the additional income from a Roth IRA conversion. For more details, click here.
- Conduct an annual beneficiary review. The end-of-year planning meeting can provide an opportunity to review beneficiary information for clients who own IRAs. The process can help clients keep their information current and may also launch a discussion about the possibility of consolidating accounts or how to use a “stretch IRA” strategy to extend the tax-deferred income benefits to future generations. To explore this strategy, click here.
For additional tax planning strategies for 2012, read “10 income and estate planning strategies for 2012.”