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The leaves on the
trees say it is autumn, but the
calendar shows that the end of the
year is closer than you think.
Because year-end means decisions and
deadlines, it's a good idea to get
started now. There are steps you can
take and strategies that can help
you save on taxes, maximize
retirement resources and build
college savings. Don't wait until
December. Here are five things you
can do to get off to a strong start.
1. Keep retirement savings working
after a job change.
If you changed jobs or left a job in
2009, it's important to keep your
retirement savings working toward
your goals. Rolling your old 401(k)
into a Rollover IRA is an easy way
to preserve tax-deferred growth
potential, flexibility and control.
Consider any friends or family
members that may have been let go
from their jobs this year, and think
about referring them to your
financial professional so they can
keep their retirement on track.
2. Weigh the benefits of a Roth IRA
conversion.
Next year, the adjusted growth
income limits on Roth IRA
conversions lift, making it possible
for anyone to convert and reap the
benefits of a Roth IRA. One
potential positive to last year's
market decline is that a Roth IRA
conversion may be more affordable.
If your income is less than
$100,000, you're eligible to convert
some or all of your IRA savings to a
Roth IRA. You'll have to pay federal
and possibly state income tax on the
full amount of the conversion — but
the tax bill may be less than if you
converted when the value of your
account was higher. And here's the
best news: after five years and
after age 59½, any growth that
accumulates and withdrawals from
your account are 100% tax free.
3. Max out on retirement saving and
catch-up contributions.
December 31 is the deadline for
workplace retirement savings
contributions and certain small
business retirement plans. One of
the easiest ways to rebuild your
retirement savings after a bear
market is to increase your
contributions to any tax-advantaged
savings plan for which you qualify.
For 2009, you can contribute up to
$16,500 to a 401(k) — and another
$5,500 if you are age 50 or older.
In addition, anyone with a paycheck
(as well as his or her spouse) can
contribute any of their earnings, up
to $5,000, to an IRA — $6,000 if you
are age 50 or older. The deadline
for a 2009 IRA contribution is April
15, 2010.
4. Consider a 529 plan for college
savings.
Technology toys and sports equipment
are popular holiday gifts, but
consider a gift that can build
college savings for your child,
grandchild or any child you care
about — including yourself! With a
529 plan, you can set aside a little
— or a lot — as long as the money
goes toward qualified education
expenses; 529 plans can also serve
as effective estate planning tools,
as all contributions reduce a
person's federal taxable estate.1
For more information on 529 plans
and college savings, refer to the
Investment Focus section of this
newsletter.
5. Be tax smart about fund
distributions.
A good year for the financial
markets may translate into dividend
and capital gains distributions for
many mutual funds in the fourth
quarter: that's when most funds make
their annual distributions. For the
funds you already own, it's
important to include distributions
in next year's tax planning. It's
even more important to know the
distribution date of any fund you
plan on adding to your portfolio.
(At John Hancock Funds, you'll find
the information online at
www.jhfunds.com or by calling a
Customer Service Representative at
1-800-225-5291). You may not want to
buy into a tax liability that you
could avoid simply by waiting a day
or two. Of course, taxes should be
only one consideration in any
investment decision, so be sure to
speak with your financial
professional or tax adviser about
any strategy that involves taxes.
Consult your financial professional
There are dozens of year-end
strategies that make sense,
depending on your individual
financial situation. Don't get left
out in the cold. Talk with a tax or
financial professional well before
December 31 to give yourself time to
benefit from professional advice.
1
State tax laws and treatment may
vary. Earnings on non-qualified
distributions will be subject to
income tax and a 10% federal penalty
tax. Please consult your tax adviser
for more information. |
