End of Year Planning

End of Year Planning
Gray Easterling

According to an online article in the September 29, 2010 Financial Advisor magazine, IRA’s represent the largest single share of the $13 trillion in U.S. retirement assets. This is despite the fact that the average IRA balance in 2008 was $54,863. Proper maintenance of your own IRA may require attention to detail prior to year end. This article lists several items that you may need to attend to. First, make sure you are set up for your required minimum distribution if applicable. If you are age 70.5 or older, a distribution is required. Also, beneficiaries must take distributions from inherited IRA’s beginning in the year after the death of the account owner. Note that inherited IRA’s should be split before year end so that beneficiaries can use their own life expectancies to calculate their RMD.

You should check to be sure that you have not over-contributed for the year. If so, remove the excess prior to year end or face a charge of 6% for excess contributions. Review your custodial agreement to confirm that the custodian will allow “stretch” for beneficiaries. This can result in significant tax savings for the beneficiary. Review your beneficiary designations. Make sure there is a primary and contingent beneficiary. Without a designation, IRA proceeds go to the estate and any tax advantage of the “stretch” is lost. If the primary beneficiary dies without a contingent being named, the same adverse results occur as relates to the “stretch”.

If you have any thoughts of converting to a Roth IRA in 2010, the funds must leave the traditional IRA not later than December 31st to be reported as a 2010 distribution and conversion. Remember that in 2010, anyone can convert to a Roth, regardless of income. In prior years, you have been restricted. The tax on the conversion can be paid over two years instead of one. The ordinary income tax will be based on any previously deducted traditional IRA contributions plus earnings. Also, the conversion could place you in a higher tax bracket, therefore consult with your tax advisor before making any changes. Year end is also a good time to review your investment allocations. Make sure they remain consistent with your investment objectives and financial goals. Look at all your investments and rebalance accordingly, if action has not been taken earlier in the year. If you have old 401(k)’s at former employers, consider moving them into a single IRA. Not only will your paperwork be consolidated, but you will control your investments, finding better choices and perhaps lower costs.

The September 20, 2010 issue of the Investment News suggests a few ideas for maximizing social security benefits. When one person is the majority wage earner, a file and suspend program entails having the wage earner file for benefits and the spouse file for spousal benefits. The major wage earner would suspend benefits, but the spouse would continue to draw benefits. The wage earners benefits will continue to grow until he/she begins taking payments. How about a collect now and collect more later strategy? When you have two wage earners, the wife can stop working and draws social security based on her work history. The husband continues to work and does not draw his benefits. However, if he is at full retirement age, he can start receiving spousal benefits based on his wife’s social security income while allowing his benefits to grow. At age 70, he stops receiving his spousal benefit and starts drawing his delayed benefits. These ideas are not a fit for everyone, but getting advice from knowledgeable sources may result in additional retirement income.

From IRA/Social Security planning to lifestyle planning—can I make this stretch? Chris Young has a song out with these lyrics: “God, I’m down here on my knees cause it’s the last place left to fall, begging for another chance, if there is any chance at all that You might be listenin’, lovin’ and forgivin’ guys like me. I want to be a good man, a do like I should man. I want to be the kind of man the mirror likes to see. I want to be a strong man and admit I was wrong man. God, I’m asking You to come change me into the man I want to be.” At your Thanksgiving dinner, remember to give thanks to the God and Savior that hears prayers, receives them and responds to them always and forever.

Securities and Investment Advisory Services offered through FSC Securities Corporation, member FINRA/SIPC and a registered investment advisor. 3416 North Blvd, Alexandria, LA 71301, (318) 448-3201. The views expressed are not necessarily the opinion of FSC Securities Corporation.