The last few months of a year often prompt people to think about goals they want to pursue in the coming year. If your goals include financial issues, an annual review with your financial advisor is an excellent opportunity to focus on what you need to do to pursue them. Every person’s goals are unique, but you may want to think about the following areas when preparing for your review.
Building Retirement Assets
Your advisor can help you calculate how much you need to save for your later years. If you are coming up short, funding an IRA may help you close the gap (see note below). For the 2010 tax year, you may contribute a maximum of $5,000 to a traditional or to a Roth IRA—plus a $1,000 catch-up contribution if you are age 50 or older. If you haven’t yet made your 2010 contribution, you may do so up until April 15, 2011. These contribution limits will remain unchanged for the 2011 tax year.
Preparing for Education
College costs continue to increase faster than the rate of inflation, which presents a challenge for academically minded families. In addition to saving as much as you can afford and pursuing financial aid, you may want to consider a Coverdell Education Savings Account (ESA)—but you’ll want to do so before the end of this year.
Coverdell accounts currently permit you to save $2,000 annually per beneficiary. Withdrawals are tax-free as long as they are used for qualified expenses associated with elementary, secondary or higher education. However, like many other tax provisions established during the Bush Administration, Coverdell ESAs will revert to their pre-2002 annual contribution limit of $500 per beneficiary on January 1, 2011, unless Congress acts to extend the law.
What actions should you consider now? If you currently have a Coverdell ESA, be sure to make your current-year contribution by December 31, 2010. Similarly, if you need to withdraw funds from a Coverdell account to cover qualified education expenses for the current school year, do so by December 31, 2010.
Evaluating Your Estate
When crafting your financial plan, be sure to consider whether your investments complement the provisions of your will. As part of this exercise, your financial advisor can help you review the potential estate-planning benefits of stretch IRAs, Roth IRAs and other accounts. Don’t forget to review beneficiary designations to make sure they are up-to-date.
Assessing Your Asset Allocation
Last but certainly not least, your financial advisor can make sure your portfolio’s mix of assets—stocks, bonds and cash investments—is on target given your risk tolerance and time horizon. A more aggressive mix may be appropriate for longer-term goals that are 10 or more years away, while being more conservative may be desirable for shorter-term objectives.
There may be other areas you want to pursue, but these few may provide initial food for thought. By capitalizing on the goal-setting opportunities of your annual review, you’ll improve your chances of making the coming year a building year for your financial future.
Note: Withdrawals of earnings or other taxable amounts are subject to income tax, and if made prior to age 59½, may be subject to an additional 10% federal tax penalty.
Tracy A. MacKinstry, CFS, is a financial consultant in Clinton and the owner of MacKinstry Financial and Investments, 9 Old Post Road (Rt. 145), specializing in retirment planning. You can reach her at: 860-669-9900; email email@example.com; or at www.mackinstry.com
Securities Offered through LPL Financial, Member FINRA/SIPC. This article is not intended to provide specific investment or tax advice for any individual.