Post-cliff impact on taxes, investments
As the dust settles from the fiscal cliff deal, this is a good time to re-evaluate your tax situation and investment portfolio.
This post comes from Roger Wohlner at partner site U.S. News & World Report.
It’s 2013. The world did not end in December, and our "leaders" in Washington seem to have averted the fiscal cliff, at least for now. Against this backdrop, there are a number of financial planning opportunities for this new year.
Some opportunities born out of the bill passed by the House and the Senate:
• There will be increased opportunities for investors to do Roth conversions. This may or may not be a good idea for you and should be looked at carefully before going this route.
• The estate tax rate increases to 40%, and the estate tax exemption remains at $5 million. This now allows for some certainty in estate planning that was lacking with the pending expiration of the old rates.
• The income tax rates on the highest earners will rise to 39.6% from 35%, and the tax rates on dividends rise to 20% from 15%. Together, these increases might influence your investing activities in terms of the types of investments held in taxable versus tax-deferred accounts and in the types of investment vehicles in your portfolio.
• Congress has also made a fix to the Alternative Minimum Tax for the next 10 years. Again this might make certain investments more desirable and others less so in your taxable portfolio.
There are other opportunities that are timeless, and the New Year is a good time to address these:
• If you aren't contributing the maximum to your 401k or similar company retirement account, increase your contribution to the extent that you can. The maximum deferral rates for 2013 are $17,500 and $23,000 for those who will be 50 at any point in 2013. At the very least, try to contribute enough to receive the maximum match offered by your plan.
• Get a financial plan in place or review your existing plan. This should be the basis of your investing and financial activity. In periods of financial uncertainty, a financial plan can be the basis of sound personal financial management.
• Review and re-balance your investment portfolio as needed. The markets have been pretty volatile of late, how has this impacted your portfolio?
• If you have a number of accounts, such as old 401ks, multiple IRAs, etc. organize and consolidate those accounts as appropriate. This will make it easier to review and manage these accounts and to look at all of your investment holdings as a total portfolio versus a collection of investments.
• Hire a financial professional if you need help. Here’s wishing everyone a happy, healthy and prosperous 2013.
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