Five last-minute financial moves before 2012 ends


There is still time to take advantage of last-minute financial planning opportunities before 2012 comes to a close. While you will have to act fast, the following year-end strategies could have a substantial impact on everything from next April’s tax bill to your retirement assets.

Increase your last 401(k) contribution

Unlike IRAs, 401(k) contributions have to be made by Dec. 31. With the maximum contribution for 2012 being $17,000 plus a catch up for those older than age 50 of $5,500, substantial tax savings could be realized by taking full advantage of your plan.

Consider contacting your plan administrator or payroll department to determine how much you have contributed year to date and make any last-minute contributions before year end.

Take your RMD

Unfortunately, the IRS will not allow you to defer taxes on your retirement accounts forever. Instead, they require that you must begin taking distributions by the time you reach age 70½.

Your first required minimum distribution (RMD) must be taken by April 1 of the year following the year you turn 70½. Future RMDs must be taken by Dec. 31 of each year.

Be careful though: If you fail to take your RMD, a 50 percent penalty may be assessed on the value of the amount that should have been withdrawn.

For example, if a taxpayer is required but accidentally fails to take $5,000 from their IRA account by Dec. 31 of this year, a $2,500 penalty may be owed. Take action to ensure that you do not miss this important deadline.

Make year-end gifts

With fiscal cliff negotiations continuing, there is a tremendous amount of uncertainty regarding estate taxes.

According to current plans, the estate and lifetime gift tax exemption may drop from $5.12 million to $1 million in 2013 with maximum estate tax rates increasing to 55 percent from 35 percent. With that said, some may want to consider taking advantage of year-end gifting.

For 2012, individuals can gift up to $13,000 to as many people as they like. Gift splitting with your spouse could allow for gifts of up to $26,000 per person.

While gifting is a great way to remove funds from your taxable estate, it is also irrevocable and you must be sure that you can afford to make the gift. Due to inflation adjustments, the maximum gift for 2013 will increase to $14,000.

Last-minute charitable contributions

Charitable contributions are a fantastic way to help others while minimizing your tax liability. However, the deadline for gifts of cash, property or appreciated stock is Dec. 31.

Consider speaking to your tax adviser to determine if you should rush to make your contribution for this year or whether it may be in your best interest to postpone your contribution until next year when you may be in a higher tax bracket.

Tax gain harvesting

Many investors are familiar with tax loss harvesting, which is the process of selling investments in non-retirement accounts that may have lost money to help offset gains on other investments. But most have not had to consider tax gain harvesting until now.

With the possibility of capital gains rates increasing as much as 23.8 percent next year due to the fiscal cliff, many investors may want to lock in their gains at the 15 percent rate while they still can.

While you may not want to allow taxes to be the overriding factor when making investment decisions, paying a capital gains tax at a lower rate could help you save substantially in the future.

The tax law changes looming on the horizon can make financial planning more difficult.

Unfortunately, by the time we know what Congress has planned for tax rates next year, it may be too late to make adjustments.

Because everyone’s situation is unique, consider speaking to your tax and legal advisers to determine the most appropriate year-end strategy for you.


Kurt J. Rossi, MBA, is a certified financial planner practitioner. He can be reached for questions at (732) 280-7550 or LPL Financial Member FINRA/SIPC.