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Year-End Planning Can Yield Savings


Year-end planning involves remembering to focus on areas you can control. In spite of the current economic and political uncertainty, one can uncover financial planning opportunities to be thankful for this year and in 2012.

The end of another year is upon us. With so much volatility over the last six months and still much uncertainty surrounding issues of debt, taxes and political leadership, it’s easy to become cynical and focus on what’s not working in your financial plan or investment portfolio.

But with Thanksgiving having just passed and the holiday season only beginning, it’s a good time to highlight some positive aspects as we conclude the year and look ahead to 2012.

There are a few of bright spots for seniors. Recently, it was announced that Medicare’s premium increase for 2012 is expected to be less than anticipated. Although Medicare participants will still be paying an additional $3.50 a month versus current levels, or roughly around $99.90 total monthly, the new Part B premium for outpatient care in 2012 is $7 less than what was originally projected. The annual deductible for Medicare Part B will also drop to $140, a decrease of $22.


n 2011, you also can still make a Qualified Charitable Distribution (QCD) from your IRA. This means that any distributions up to $100,000 made from your IRA that go directly to a qualified charity will not be included for income for tax purposes. If you are over age 70-and-a-half, this may be a good way to use your Required Minimum Distribution for the year.

Other positive news is that monthly social security and supplement security income (SSI) benefits will increase 3.6% in 2012 as a result of the cost-of-living adjustment (COLA). The purpose is to ensure that the purchasing power of social security benefits is not eroded over time by inflation. The last COLA increase occurred in 2009.

Other inflation adjustments

Seniors are not the only ones who will benefit from inflation adjustments, as federal tax brackets also will rise next year. Generally, this means that the higher your income, the more savings you realize as more of your income is shifted into lower tax brackets. For example, for a married couple filing jointly, the 25% bracket starts at $70,700, up from $69,000 in 2011.

The IRS also has increased the amount that individuals will be able to contribute to their 401(k), 403(b) and most 457 plans to a total of $17,000 if under age 50 and $22,500 for those age 50 or older. This is an additional $500 from the current contribution limits.

Although there are still many questions regarding the future of estate taxes after 2013, for now the basic exclusion for estate taxes will be $5,120,000, up from $5,000,000 in 2011. Given the uncertainty, it’s still a good idea to meet with an attorney to review your estate plan and lifetime gifting strategies, even if your estate is below the current exclusion amounts.


ax deductions and credits

There is still time to take advantage of soon-to-expire tax deductions before the end of the year. For example, the above-the-line deduction for qualified expenses used for higher education is still effective until December 31, 2011. That means that you can prepay any eligible expenses now in order to maximize your deduction.

There’s also still time to take advantage of the home-energy credit. Scheduled to expire at the end of 2011, you can claim a credit of up to $500 if you installed new windows, insulation or made other energy-saving improvements to your home in 2011.

While recent market performance is nothing to celebrate, you can take advantage of tax-loss harvesting to lessen the sting by selling positions that may have a loss to offset any capital gains that you recognized earlier in the year. If you can sell enough to generate another $3,000 in net losses (for married taxpayers filing jointly), the amount can be deducted against your income from other sources, reducing your taxable income for the year.

Year-end planning involves remembering to focus on areas you can control. In spite of the current economic and political uncertainty, one can uncover financial planning opportunities to be thankful for this year and in 2012.

Good news for seniorsTax-loss harvestingDisclosure Language for Blog

(“Modera”). Nothing contained in this blog should be construed as personalized investment, financial planning or other advice, and there is no guarantee that the views and opinions expressed herein will come to pass. Investing in the stock and bond markets involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be construed as a solicitation to buy or sell any security or engage in any particular investment strategy.

Tom Orecchio is a principal and wealth manager with Modera Wealth Management, LLC

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